A method for offloading packet encapsulation for an overlay network is provided. The method, at a virtualization software of a host, sends a mapping table of the overlay network to a physical network interface controller (NIC) associated with the host. The mapping table maps the identification of each of a set of virtual machine (VM) of a tenant on the host to an identification of a tunnel on the overlay network. The method, at the virtualization software, receives a packet from a VM of the tenant. The method sends the packet to the physical NIC. The method, at the physical NIC, encapsulates the packet for transmission over the overlay network by using the mapping table. The method of claim also tags the packet by the virtualization software as a packet that requires encapsulation for transmission in the overlay network prior to sending the packet to the physical NIC.