Co-locating a virtual machine with nested virtualization, in one aspect, may comprise receiving a list of one or more virtual machine instances to co-locate with associated configuration information. A parent virtual machine instance may be identified to host the one or more virtual machine instances. Virtual machine images associated with the one or more virtual machine instances may be consolidated. A composite parent virtual machine image may be created based on the consolidated virtual machine images and the parent virtual machine instance. The parent virtual machine instance may be configured to accommodate for capacity requirement of the one or more child virtual machine instances. The parent virtual machine instance may be started on a processor via the composite parent virtual machine image. The one or more virtual machine instances may be started within the parent virtual machine instance as one or more child virtual machine instances.