An apparatus and method are described for allocating local memories to virtual machines. For example, one embodiment of an apparatus comprises: a command streamer to queue commands from a plurality of virtual machines (VMs) or applications, the commands to be distributed from the command streamer and executed by graphics processing resources of a graphics processing unit (GPU); a tile cache to store graphics data associated with the plurality of VMs or applications as the commands are executed by the graphics processing resources; and tile cache allocation hardware logic to allocate a first portion of the tile cache to a first VM or application and a second portion of the tile cache to a second VM or application; the tile cache allocation hardware logic to further allocate a first region in system memory to store spill-over data when the first portion of the tile cache and/or the second portion of the file cache becomes full.