Example methods and systems for packet handling in a software-defined networking (SDN) environment are disclosed. One example method may comprise detecting an egress application-layer message from a first logical endpoint supported by a first host; and identifying a second logical endpoint supported by the second host for which the egress application-layer message is destined. The method may also comprise generating an egress packet that includes the egress application-layer message and metadata associated with the second logical endpoint, but omits one or more headers that are addressed from the first logical endpoint to the second logical endpoint. The method may further comprise sending the egress packet to the second host to cause the second host to identify the second logical endpoint based on the metadata, and to send the egress application-layer message to the second logical endpoint.