A method for performing Layer 3 direct server return is disclosed. The method comprises receiving an IP packet from a client device over a communication network. Further, the method comprises extracting a virtual IP address from a destination header field of the IP packet. Subsequently, the method comprises determining a server to which to forward the IP packet and inserting an IP address of the server in the destination header field of the IP packet. Next, the method comprises inserting the virtual IP address in an extension header for the IP packet. Finally, in one embodiment, the method comprises transmitting the IP packet to the server over the communication network.