Example methods and computer systems are provided for east-west service insertion in a public cloud environment. An example method may comprise detecting an egress packet that is destined for a second endpoint located in the same virtual network as a first endpoint. The method may also comprise: in response to determination that service insertion is required, identifying a service path based on a service insertion rule; generating an encapsulated packet by encapsulating the egress packet with an outer header that is addressed from the first endpoint to a network device; and sending the encapsulated packet to cause the network device to send the egress packet towards the service path, thereby steering the egress packet towards the service path for processing.