Also called a "VLAN," it is a logical subgroup within a local area network that is created via software rather than manually moving cables in the wiring closet. It combines user stations and network devices into a single unit regardless of the physical LAN segment they are attached to and allows traffic to flow more efficiently within populations of mutual interest.

VLANs are implemented in port switching hubs and LAN switches and generally offer proprietary solutions. VLANs reduce the time it takes to implement moves, adds and changes.

VLANs function at layer 2. Since their purpose is to isolate traffic within the VLAN, in order to bridge from one VLAN to another, a router is required. The router works at the higher layer 3 network protocol, which requires that network layer segments are identified and coordinated with the VLANs. This is a complicated job, and VLANs tend to break down as networks expand and more routers are encountered. The industry is working towards "virtual routing" solutions, which allows the network manager to view the entire network as a single routed entity. See 802.1q.