Impedance matching is a novel approach to executing model‐in‐the‐loop (MIL) simulations. The concept, key features, and sample applications of this approach have been described in a series of publications. This paper advances theory and implementation for impedance‐matching MIL by: (1) developing a feedback linearization technique for implementing MIL for nonlinear virtual systems, (2) systematically characterizing MIL performance‐stability tradeoffs using three design‐oriented criteria—performance: defined as closeness of the controlled‐actuator impedance to the virtual‐boundary impedance; control effort: low controller response at high frequencies to reduce sensitivity to measurement noise and uncertainties in the actuator model; and stability: pursued using passivity of the controlled actuator system, and (3) assessing, through experimentation, the robustness of two ways to estimate feedback reaction force from the test article. These fundamental advancements to MIL are described using a one‐dimensional configuration consisting of a fluid‐filled cylindrical vessel as the physical test article and a uniaxial hydraulic shake table controlled to imitate different seismic isolation systems at the base of the vessel.