In general, techniques are described for enhancing operations of virtual networks. In some examples, a network system includes a plurality of servers interconnected by a switch fabric comprising a plurality of switches interconnected to form a physical network. Each of the servers comprises an operating environment executing one or more virtual machines in communication via one or more virtual networks. The servers comprise a set of virtual routers configured to extend the virtual networks to the operating environments of the virtual machines. A virtual router of the set of virtual routers is configured to prepare tunnel packets by forwarding packets received from virtual machines to an IPSec kernel executing in a host operating network stack, receiving the ESP packets back from the IPSec kernel and forwarding the ESP packets across the virtual networks.