A system and method for idle processor management in virtualized systems are disclosed. In accordance with one embodiment, a guest operating system (OS) of a virtual machine estimates an idle time for a virtual central processing unit (CPU) of the virtual machine, where the virtual machine is executed by a CPU of a host computer system, and where the virtual CPU is mapped to the CPU. The guest OS also estimates a host latency time for the host computer system, where the host latency time is based on at least one of: a first power state of the CPU, a context switch associated with execution of the virtual machine by the CPU, or an idle state of a hypervisor executed by the CPU. When the idle time for the virtual CPU divided by a performance multiplier exceeds the host latency time, the virtual CPU is caused to halt.