In accordance with an embodiment, described herein is a system and method for two-tier adaptive heap management (AHM) in a virtual machine environment, such as a Java virtual machine (JVM). In accordance with an embodiment, a two-tier AHM approach recognizes that more virtual machines can be run on a particular host, or the same number of virtual machines can support higher load while minimizing out-of-memory occurrences, swapping, and long old garbage collection pauses, if the heap is divided into tiers, so that a garbage collection policy that minimizes pause time can be used in a first (normal) tier, and a garbage collection policy that favors heap compaction and release of free memory to the host can be used in another (high-heap) tier.