Body Integrity Dysphoria (BID) is characterized by a profound incongruity between the physical body and a desired, i.e., amputated body, often leading to a desire for limb amputation. Virtual reality (VR) intervention and multisensory stimulation paradigms provide powerful tools to enable transient, illusory embodiment of the desired body, thus experiencing a virtual amputation. This study investigates the impact of VR on neural responses in 18 individuals with BID compared to 18 age and sex matched healthy controls. We used both task-based and resting-state MRI to assess activity when viewing images of the body in the desired versus the undesired state before and after VR, along with functional connectivity measures. In VR, participants played a game with an amputated body, which was adapted for the BID group to simulate their desired bodily shape, seen from a first-person perspective and mimicking the participant's leg movements. Compared to controls, individuals with BID demonstrated a stronger self-reported sense of ownership and control over the virtual body. Task-based fMRI results showed increased activity in the right superior parietal lobule (rSPL), right angular gyrus, and right supplementary motor area pre-VR in the BID group, which normalized post-VR. Resting-state fMRI revealed reduced connectivity in the rSPL, visuo-occipital areas, fronto-parietal, and fronto-striatal mirror and limb system networks pre-VR, also normalising post-VR. Additionally, there was a normalization in the pattern of increased connectivity of dopaminergic cortico-striatal tracts connecting the rSPL and the pars orbitalis of the right inferior frontal gyrus with the nucleus accumbens. Our findings suggest that virtual embodiment effectively modulates BID-related neural networks, potentially providing a controlled, cost-effective, and safe approach to address body dissatisfaction. They also underscore the significance of VR in unravelling the intricate relationship between the body and self, with potential implications for other psychiatric disorders of the bodily self.