In one embodiment, a system includes logic adapted for receiving an overlay-encapsulated packet including one or more underlay packets, logic adapted for decapsulating the one or more underlay packets from the overlay-encapsulated packet, logic adapted for deriving a priority for each of the one or more underlay packets based on at least one of: a priority of the overlay-encapsulated packet, a transport header of the overlay-encapsulated packet, and an application designation of the one or more underlay packets, and logic adapted for setting the priority of the one or more underlay packets. In another embodiment, a method includes receiving an overlay-encapsulated packet, decapsulating underlay packets therefrom, deriving a priority for the underlay packets, and setting the priority of the underlay packets, the priority being based on any of: a priority of the overlay-encapsulated packet, a transport header of the overlay-encapsulated packet, and/or an application designation of the underlay packets.