The agreement will enable Longhorn server to run Linux on XenEnterprise and will also provide interoperability between Linux running on Xen on Windows, and Windows running on Microsoft’s own Windows hypervisor on the Longhorn Windows Server.

As such it is another example of Microsoft’s increasing interest in interoperability, although it is not expected to bear fruit for some time. In a statement Microsoft said that said it plans to release a beta of Windows Server virtualization by the end of this year, with a release to manufacturing due six months after the release to manufacturing of Windows Server Longhorn.

That is not expected until the end of 2007, so the virtualization functionality could be at least two years away.

Microsoft CEO Steve Ballmer first discussed plans for Microsoft’s own hypervisor in April 2005 at the company’s Microsoft Management Summit in Las Vegas. You’ll see us introduce hypervisor technology around Windows, that is important, he said. We have virtualization technology today, but really this notion of a smaller, thinner hypervisor and what that can mean is very important.

Plans were confirmed by Microsoft’s corporate vice president of server and tools marketing and solutions, Andy Lees, in June last year. Having a hypervisor semi-hardware layered virtualization is the important step forward. Ultimately we will build a hypervisor working with Intel and AMD and do it at the operating system level, he said.

That development raised the potential of Microsoft competing head on with XenSource in the virtualization space, but it now appears that Microsoft is not convinced that it needs to own the virtualization layer.

The company recently announced that it will make its Virtual PC technology available free of charge and enable up to four versions of Vista to run in virtual environments on a single PC, regardless of whether the user is running Microsoft virtualization technologies.

Microsoft already provides technical support for Linux running in a virtual environment on Windows following the launch of Virtual Server R2 at the LinuxWorld Conference and Expo in April.