An on-demand virtual drive from dedicated storage on a plurality of partners in a peer-to-peer network uses an agent installed on each of the partners. The agent has a contributing program and a requesting program. The contributing program creates a first storage unit and a second storage unit, formatting the second storage unit so that it is not visible to the operating system of the partner and transmitting the size of the second storage unit to the other partners. The requesting partner creates a virtual drive using space on selected partner's second drives, and directs data blocks in and out of the virtual drive. A rules engine incorporating RAID algorithms governs the selection of the partners and allocation of available space.