In modern day data centers economics is motivating server consolidation. Today, machine virtualization is being widely used to implement server consolidation. While great strides have been made in efficient virtualization of the machine's processors and memory, virtualization of I/O devices still incurs significant overheads. Xen uses the driver domain I/O model to support I/O virtualization. This model offers benefits such as fault isolation and device transparency. However, the processing overheads incurred in the driver domain to achieve these benefits limit overall I/O performance. This thesis presents mechanisms and optimizations to reduce the overhead of network interface virtualization when using the driver domain model without sacrificing its benefits. In particular, this thesis demonstrates the effectiveness of two approaches to reduce the CPU overhead of network I/O virtualization. First, Xen is modified to support multi-queue network interfaces to eliminate the software overheads of packet de-multiplexing and copying. Second, a new grant mechanism is developed to reduce memory sharing overheads. This thesis also presents and evaluates a series of optimizations that substantially reduce the I/O virtualization overheads in the guest domain. In combination, these mechanisms and optimizations increase the maximum throughput achieved by guest domains, in the receive path, from 3.0 Gb/s to full 10 Gigabit Ethernet link rates.