From Mac OS X 10.7 (Lion), Apple allows full virtualization of its operating system, provided that it is installed on Apple hardware which is also running OS X 10.7.

Apple's updated license agreement allows you to install up to two additional copies of Lion on your Mac which is already running a retail version of Lion. This does not apply for Macs that came with Lion pre-installed, as Apple's License Agreement does not allow this version to be virtualized.

You cannot install OS X 10.6 or OS X 10.5 Client (only OS X 10.5 or OS X 10.6 Server), and you cannot install OS X 10.7 on a Mac running OS X 10.6. For more information, see Apple's Software License Agreement for Mac OS X (Lion 10.7).

Note: The preceding link was correct as of September 5, 2013. If you find the link is broken, provide feedback and a VMware employee will update the link.

Note: You need to have the Install Mac OS X Lion app, in order to perform the following steps.

To install Mac OS X 10.7 (Lion) in a virtual machine using the Lion installer download:

1. In Fusion, from the menu bar, go to File > New.
2. Choose Install from disc or image.
3. Drag and drop the Install Mac OS X Lion application onto the Choose an operating system installation disc or image drop-down menu. (The inner window frame highlights in blue, indicating that you can drop the file there).
   
   The drop-down menu changes to Install Mac OS X Lion.
    
4. Click Continue.
5. Ensure Operating System is set to Apple Mac OS X and Version is set to OS X 10.7 64-bit then click Continue.
6. If you wish to adjust any of the settings, click Customize Settings to specify non-default values for memory (RAM), CPU, hard disk size, etc.
7. Click Finish.
   
   The installation starts.
    
8. When prompted, select Reinstall Mac OS X and click Continue.
9. Click Continue.
10. Agree to the license agreement and follow the prompts to begin the installation. The Lion installer download additional needed components, then reboots.

To install Mac OS X 10.7 (Lion) in a virtual machine using the Lion USB installer disk:

1. In Fusion, from the menu bar, go to File > New.
2. Choose Continue without disc.
3. Choose Create a custom virtual machine then click continue.
4. Using the drop down menus, select Apple Mac OS X for the Operating System, and OS X 10.7 for the Version.
   
   Note: Choose OS X 10.7 64-bit if you would like the 64 bit version.
    
5. Click Continue.
6. If you wish to adjust any of the settings, to specify non-default values for the memory (RAM), CPU, or hard disk size, click Customize Settings.
7. Click Finish.
   
   You are presented with the VMware EFI boot screen.
    
8. Wait until the screen changes to the shell prompt, then type exit and hit enter.
9. Connect your Lion USB install disk to your Mac.
10. In Fusion, from the menu bar, go to Virtual Machine > Settings.
    
    Note: If your mouse pointer does not move, press the control and command keys on your keyboard.
     
11. Select USB & Bluetooth, place a check next to the Mac OS X Install disk, then select Connect to VM fromthe dropdown menu.
12. Close the Settings window.
13. Click in the virtual machine window, then use the keyboard arrow keys to select Boot Manager. Press enter.
14. In the Boot Manager screen, use the arrow keys to select EFI USB Device. Press enter.
    
    The Lion recovery utility boots.
     
15. Select your language and press enter.
16. Choose Reinstall Mac OS X and press enter.
    
    The OS X installation begins.

Once the installation is complete, VMware Tools must be installed in the guest. To do this, first eject the Mac OS installation disc image from within the new virtual machine. For more information, see Installing VMware Tools in a Mac OS guest (1032440).