Many users are going to create a Windows XP virtual machine, and this section will give you a step-by-step description of how to do that. Here we go:
- Start Parallels Workstation as we discussed in the Starting Parallels Workstation section.
- Create a virtual machine for Windows XP.
To initiate this process use either the
button or the File->New VM menu item. Follow the steps of the New Virtual Machine Wizard as described in the Creating a Virtual Machine section.
- Now we are ready to install the Windows XP guest operating system. Insert the installation CD or DVD with the full version of Windows XP into the CD/DVD-ROM drive of your computer.
- Click the Power On
button to start the virtual machine. Installation starts, and the Welcome to Setup screen is shown soon.
Now you've got two computers running at once: your actual PC, and the simulated computer that's running inside it. But you've got only one mouse and keyboard! How, then, is Parallels Workstation supposed to know when a certain mouse or keyboard activity is intended for your primary OS, and when for the guest OS? To start communicating with virtual machine, you have to capture your mouse and keyboard inside the virtual machine: click somewhere inside the Windows XP screen.
Note. You can return to your primary OS at any time by pressing Ctrl+Alt
on your keyboard.
After this press Enter
on your keyboard.
- The license agreement is displayed on the screen. To scroll down press the
Pagedown
key. To agree press F8
.
- In the lower part of the following screen, the Setup displays the list of hard disks and partitions available in the virtual machine. You should have the only one item, the unpartitioned space. Press
Enter
to set up Windows XP on this object. 
- After this, you'll have to choose how to format your system volume. It is best to format the Windows XP system disk using NTFS quick formatting method. So, select the type of file system and mode of formatting and press
Enter
.
- The virtual machine will restart automatically. The text stage of the installation is completed. During the next stage, dialog boxes will be used. Select your Regional and Language Options and proceed to entering license key. Type it and click Next.

- On the next several screens you will be asked to enter computer name and administrator password, select your date and time zone, specify your network setting (we recommend to select typical ones).
- Next, you have to specify whether your computer will be a member of a domain. If you are creating the virtual machine for running it in corporate environment, ask system administrator whether you should specify the domain. Otherwise, choose the first option to make your virtual machine a member of workgroup.

- After that, Setup adjusts the Display Settings for better image quality.
- In the Help protect my PC screen indicate whether you want to turn on the Automatic Updating feature. We recommend to turn automatic updates on.

- As the next step, choose the way your computer will be connected to the Internet. Select Yes.

- If you want to register with Microsoft specify this in the following screen.

- Setup prompts you to create user accounts for each person who will use this virtual machine.

- Install Parallels Tools. Refer to the Parallels Tools topic or to Creating Virtual Machine/Installing Parallels Tools section in the User Guide.
After installation of Parallels Tools, you will be able to move the cursor smoothly between your guest Windows XP and primary OS without pressing Ctrl+Alt
.
- Configure the virtual machine for your needs.
Connect the virtual machine to the Internet or create a host-only network (refer to the Accessing the Internet topic or to the Managing Virtual Machines / Networking in Virtual Machine section in the User Guide).
To make the file exchange between primary OS and your virtual machine easier, create shared folders as discussed in the Creating Shared Folders topic.
After this, you'll be ready to install programs and applications in your new Windows XP virtual machine. Enjoy the convenience of Windows XP and your primary OS side-by-side!