Methods, software, and apparatus for implementing local service chaining (LSC) with virtual machines (VMs) or virtualized containers in Software Defined Networking (SDN). In one aspect a method is implemented on a compute platform including a plurality of VMs or containers, each including a virtual network interface controller (vNIC) communicatively coupled to a virtual switch in an SDN. LSCs are implemented via a plurality of virtual network appliances hosted by the plurality of VMs or containers. Each LCS comprises a sequence (chain) of services performed by virtual network appliances defined for the LSC. In connection with performing the chain of services, packet data is forwarded between VMs or containers using a cut-through mechanisms under which packet data is directly written to receive (Rx) buffers on the vNICs in a manner that bypasses the virtual switch. LSC indicia (e.g., through LSC tags) and flow tables are used to inform each virtual network appliance and/or or its host VM or container of the next vNIC Rx buffer or Rx port to which packet data is to be written.