Example methods are provided for packet handling based on virtual network configuration information in a software-defined networking (SDN) environment. An example comprises a first host obtaining virtual network configuration information that specifies a first virtual object identifier (ID) and a first address associated with a first virtualized computing instance, and a second virtual object ID and a second address associated with a second virtualized computing instance. In response to detecting an egress packet with an inner header that is addressed from the first address to the second address, the first host may generate an encapsulated packet by encapsulating the egress packet with an outer header that specifies the second virtual object ID; and send the encapsulated packet to the second host to cause the second host to decapsulate the outer header and, based on the second virtual object ID, send the egress packet to the second virtualized computing instance.