In the past few years, the demands for more complex system development and the ever-increasing requirement for hardware and software improvements have increased the need for a virtual embedded system where the hardware, microcontroller and software co-exist at the simulation level. This paper discusses the implementation of an approach that allows the full simulation of the embedded system.In the scope of this paper the definition of an embedded system refers to the electro-mechanical plant, the microcontroller, the peripherals and the software. The sensors and actuators are developed with a conservative type simulator such as Saber from Synopsys. The microcontroller and the attached peripherals are developed and modeled with the Comet environment from VaST. The microcontroller simulator is instruction cycle accurate.We are describing an innovative concept that will allow co-simulation between the two simulators. This will not only provide the engineer with a very powerful approach to evaluate a processor and its architecture before device manufacturing but also serve as a means to interact with a validated sensor and plant model. The virtual embedded system will include typical components such as sensor, filtering circuit, electrical termination including pin, die and package impedance and any additional drivers such as FET to control the actuator. The software used is original software that has not been specifically modified for this application. This is important, as normally the software has to be intrusively modified in order to be able to trace software execution.This approach will inherently provide a platform for robust controller development that will allow the designer to perform what-if scenarios for the microcontroller, run actual code and evaluate control system with the actual software and peripherals behavior without needing hardware. This will deliver an efficient platform for very quick system development and evaluation cycle.