A method (and system) for managing memory among virtual machines in a system having a plurality of virtual machines, includes providing at least one memory optimization mechanism which can reduce memory usage of a virtual machine at a cost of increasing CPU usage. Information on memory usage and CPU usage of each virtual machine is periodically collected. In response to detecting that a first virtual machine exhibits a high level of memory use, at least one second virtual machine with extra CPU capacity is identified. The at least one memory optimization mechanism is applied to the at least one second virtual machine, to reduce memory used by the at least one second virtual machine, thereby providing a portion of freed memory. The portion of freed memory is then allocated to the first virtual machine.