Virtualization provides many benefits for data intensive workloads including security, performance isolation, and ease of management and configuration. Unfortunately, current VM technology prevents taking advantage of sharing opportunities, resulting in substantial network traffic and application slowdown. Octopus is a new framework for running data intensive applications on virtualized datacenters. Octopus provides efficient file sharing across VMs running on the same physical host and optimizes the placement of VMs in the cluster to maximize sharing opportunities. Our experiments with a suite of bioinformatics and natural language processing applications show that Octopus reduces network transfer by up to 83% and total runtime by up to 55%.