Microsoft will unveil an add-on to Windows 7 that lets users run applications designed for Windows XP in a virtual machine, the company confirmed Friday -- the first time Microsoft has relied on virtualization to provide backward compatibility.

Dubbed "Windows XP Mode," the add-on creates an XP virtual environment running under Virtual PC, Microsoft's client virtualization technology, within Windows 7, said Scott Woodgate, the director of Windows enterprise and virtualization strategy.

In a post to a company blog, Woodgate said the add-on is part of the pitch to convince businesses to migrate to Windows 7. "All you need to do is to install suitable applications directly in Windows XP Mode," said Woodgate. "The applications will be published to the Windows 7 desktop and then you can run them directly from Windows 7."

Details of Windows XP Mode (XPM) were first reported Friday afternoon by Rafael Rivera and Paul Thurrott, two prominent bloggers who are also collaborating on a book, Windows 7 Secrets, due out this fall.

According to Rivera's Within Windows blog -- Thurrott published a nearly identical write-up on his SuperSite for Windows -- Windows XP Mode will be offered as a free download only to users running Windows 7 Professional, Ultimate and Enterprise, the three top-priced editions of the new OS.

Windows 7 Enterprise is available only to companies with volume licensing agreements.

Windows XP Mode (XPM) requires processor-based virtualization support and is based on the next-generation Microsoft Virtual PC 7 virtualization technology, said Rivera, who also disclosed that Microsoft will include a fully licensed copy of Windows XP Service Pack 3 (SP3) with the add-on. That, in effect, gives Windows 7 users a way to run older applications without having to pay for another operating system license.

Rivera also touted, as had Woodgate, the ability to run Windows XP applications directly from the Windows 7 desktop without having to first open a separate virtual machine window.

"XPM does not require you to run the virtual environment as a separate Windows desktop," Rivera said. "Instead, as you install applications inside the virtual XP environment, they are published to the host (Windows 7) OS as well. That way, users can run Windows XP-based applications, like IE6, alongside Windows 7 applications under a single desktop."

Both Rivera and Thurrott trumpeted XPM as a "huge convenience" for Microsoft's corporate customers, and predicted that Microsoft will be able to discard older code and technologies from future versions of Windows, and instead rely on virtualization to provide backward compatibility.

Thurrott has published a series of screenshots that show XPM's installation, and of a Windows XP application running within Windows 7.

Although Rivera and Thurrott said that Microsoft would offer XPM when it ships Windows 7, Woodgate promised that a beta of the new add-on would be released "soon" for Windows 7, presumably on or near the launch of Windows 7 Release Candidate (RC).