A system and method is provided for managing memory allocated to a virtual machine running on a host platform. An exemplary method includes continuously calculating the amount of free physical memory of the host platform by subtracting the amount of physical memory currently used consumed by the host operating system from the total size of the physical memory on the host platform. Moreover, using the calculated amount of free physical memory, the method includes dynamically adjusting an overall limit of the physical memory that can be allocated to the virtual machine running on the host platform, and then allocating to the virtual machine an amount this allocated physical memory so that active pages can be stored in the allocated memory and directly accessed during operation by the virtual machine.