A system and method to improve memory usage in virtual machines running as hypervisor guests. In accordance with an embodiment, the invention provides a system for changing the memory usage of a virtual machine on request from a hypervisor, comprising: a hypervisor; a guest operating system executing inside the hypervisor; a communication channel between the hypervisor and the guest operating system; a balloon driver in the guest operating system; a virtual machine for executing a software application; a communication channel between the balloon driver and the virtual machine; a memory space or heap for use by the virtual machine in storing software objects and pointers as part of the software application; and a compacting garbage collector for use by the virtual machine.