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With vSphere Virtual Machine Encryption, you can create encrypted virtual machines and encrypt existing virtual machines. Because all virtual machine files with sensitive information are encrypted, the virtual machine is protected. Only administrators with encryption privileges can perform encryption and decryption tasks.

An external KMS, the vCenter Server system, and your ESXi hosts are contributing to the vSphere Virtual Machine Encryption solution.

After vCenter Server is connected to the KMS, users with the required privileges can create encrypted virtual machines and disks. Those users can also perform other encryption tasks such as encrypting existing virtual machines and decrypting encrypted virtual machines.

When you create an encrypted virtual machine from the vSphere Web Client, all virtual disks are encrypted. You can later add disks and set their encryption policies. You cannot add an encrypted disk to a virtual machine that is not encrypted, and you cannot encrypt a disk if the virtual machine is not encrypted.
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