diff --git a/nova/compute/manager.py b/nova/compute/manager.py
index 2f977b26c522..5adfcb2334b8 100644
--- a/nova/compute/manager.py
+++ b/nova/compute/manager.py
@@ -253,8 +253,7 @@ class ComputeManager(manager.SchedulerDependentManager):
 
         (old_ref, instance_ref) = self.db.instance_update_and_get_original(
                 context, instance_uuid, kwargs)
-        self.resource_tracker.update_load_stats_for_instance(context,
-                instance_ref)
+        self.resource_tracker.update_usage(context, instance_ref)
         notifications.send_update(context, old_ref, instance_ref)
 
         return instance_ref
@@ -482,10 +481,14 @@ class ComputeManager(manager.SchedulerDependentManager):
             network_info = self._allocate_network(context, instance,
                                                   requested_networks)
             try:
-                memory_mb_limit = filter_properties.get('memory_mb_limit',
-                        None)
-                with self.resource_tracker.instance_resource_claim(context,
-                        instance, memory_mb_limit=memory_mb_limit):
+                limits = filter_properties.get('limits', {})
+                with self.resource_tracker.resource_claim(context, instance,
+                        limits):
+                    # Resources are available to build this instance here,
+                    # mark it as belonging to this host:
+                    self._instance_update(context, instance['uuid'],
+                            host=self.host, launched_on=self.host)
+
                     block_device_info = self._prep_block_device(context,
                             instance)
                     instance = self._spawn(context, instance, image_meta,
@@ -686,7 +689,6 @@ class ComputeManager(manager.SchedulerDependentManager):
         LOG.audit(_('Starting instance...'), context=context,
                   instance=instance)
         self._instance_update(context, instance['uuid'],
-                              host=self.host, launched_on=self.host,
                               vm_state=vm_states.BUILDING,
                               task_state=None,
                               expected_task_state=(task_states.SCHEDULING,
@@ -891,8 +893,6 @@ class ComputeManager(manager.SchedulerDependentManager):
         self.db.instance_destroy(context, instance_uuid)
         system_meta = self.db.instance_system_metadata_get(context,
             instance_uuid)
-        # mark resources free
-        self.resource_tracker.free_resources(context)
         self._notify_about_instance_usage(context, instance, "delete.end",
                 system_metadata=system_meta)
 
diff --git a/nova/compute/resource_tracker.py b/nova/compute/resource_tracker.py
index cc088655b966..eb0d302b0fb2 100644
--- a/nova/compute/resource_tracker.py
+++ b/nova/compute/resource_tracker.py
@@ -19,17 +19,22 @@ scheduler with useful information about availability through the ComputeNode
 model.
 """
 
-from nova import context
+from nova.compute import vm_states
 from nova import db
 from nova import exception
 from nova import flags
 from nova.openstack.common import cfg
 from nova.openstack.common import importutils
+from nova.openstack.common import jsonutils
 from nova.openstack.common import log as logging
 from nova.openstack.common import timeutils
 from nova import utils
 
 resource_tracker_opts = [
+    cfg.IntOpt('reserved_host_disk_mb', default=0,
+               help='Amount of disk in MB to reserve for the host'),
+    cfg.IntOpt('reserved_host_memory_mb', default=512,
+               help='Amount of memory in MB to reserve for the host'),
     cfg.IntOpt('claim_timeout_seconds', default=600,
                help='How long, in seconds, before a resource claim times out'),
     cfg.StrOpt('compute_stats_class',
@@ -52,46 +57,36 @@ class Claim(object):
     correct decisions with respect to host selection.
     """
 
-    def __init__(self, claim_id, memory_mb, disk_gb, timeout, *args, **kwargs):
-        self.claim_id = claim_id
-        self.memory_mb = memory_mb
-        self.disk_gb = disk_gb
+    def __init__(self, instance, timeout):
+        self.instance = jsonutils.to_primitive(instance)
         self.timeout = timeout
         self.expire_ts = timeutils.utcnow_ts() + timeout
 
-    def apply_claim(self, resources):
-        """Adjust the resources required from available resources.
-
-        :param resources: Should be a dictionary-like object that
-                          has fields like a compute node
-        """
-        return self._apply(resources)
-
-    def undo_claim(self, resources):
-        return self._apply(resources, sign=-1)
-
     def is_expired(self):
         """Determine if this adjustment is old enough that we can assume it's
         no longer needed.
         """
         return timeutils.utcnow_ts() > self.expire_ts
 
-    def _apply(self, resources, sign=1):
-        values = {}
-        values['memory_mb_used'] = (resources['memory_mb_used'] + sign *
-                                   self.memory_mb)
-        values['free_ram_mb'] = (resources['free_ram_mb'] - sign *
-                                   self.memory_mb)
-        values['local_gb_used'] = (resources['local_gb_used'] + sign *
-                                  self.disk_gb)
-        values['free_disk_gb'] = (resources['free_disk_gb'] - sign *
-                                  self.disk_gb)
+    @property
+    def claim_id(self):
+        return self.instance['uuid']
 
-        return values
+    @property
+    def disk_gb(self):
+        return self.instance['root_gb'] + self.instance['ephemeral_gb']
+
+    @property
+    def memory_mb(self):
+        return self.instance['memory_mb']
+
+    @property
+    def vcpus(self):
+        return self.instance['vcpus']
 
     def __str__(self):
-        return "[Claim %d: %d MB memory, %d GB disk]" % (self.claim_id,
-                self.memory_mb, self.disk_gb)
+        return "[Claim %s: %d MB memory, %d GB disk, %d VCPUS]" % \
+                    (self.claim_id, self.memory_mb, self.disk_gb, self.vcpus)
 
 
 class ResourceContextManager(object):
@@ -127,46 +122,25 @@ class ResourceTracker(object):
         self.next_claim_id = 1
         self.claims = {}
         self.stats = importutils.import_object(FLAGS.compute_stats_class)
+        self.tracked_instances = {}
 
-    def resource_claim(self, context, *args, **kwargs):
-        claim = self.begin_resource_claim(context, *args, **kwargs)
-        return ResourceContextManager(context, claim, self)
-
-    def instance_resource_claim(self, context, instance_ref, *args, **kwargs):
-        claim = self.begin_instance_resource_claim(context, instance_ref,
-                *args, **kwargs)
+    def resource_claim(self, context, instance_ref, limits=None):
+        claim = self.begin_resource_claim(context, instance_ref, limits)
         return ResourceContextManager(context, claim, self)
 
     @utils.synchronized(COMPUTE_RESOURCE_SEMAPHORE)
-    def begin_instance_resource_claim(self, context, instance_ref, *args,
-            **kwargs):
-        """Method to begin a resource claim for a new instance."""
-        memory_mb = instance_ref['memory_mb']
-        disk_gb = instance_ref['root_gb'] + instance_ref['ephemeral_gb']
-
-        claim = self._do_begin_resource_claim(context, memory_mb, disk_gb,
-                *args, **kwargs)
-        if claim:
-            # also update load stats related to new instances firing up -
-            values = self._create_load_stats(context, instance_ref)
-            self.compute_node = self._update(context, values)
-        return claim
-
-    @utils.synchronized(COMPUTE_RESOURCE_SEMAPHORE)
-    def begin_resource_claim(self, context, memory_mb, disk_gb,
-        memory_mb_limit=None, timeout=None, *args, **kwargs):
+    def begin_resource_claim(self, context, instance_ref, limits=None,
+                             timeout=None):
         """Indicate that some resources are needed for an upcoming compute
-        host operation.
+        instance build operation.
 
-        This should be called any time the compute node is about to perform
-        an operation that will consume resources.
+        This should be called before the compute node is about to perform
+        an instance build operation that will consume additional resources.
 
-        :param memory_mb: security context
-        :param memory_mb: Memory in MB to be claimed
-        :param root_gb: Disk in GB to be claimed
-        :param memory_mb_limit: Memory in MB that is the maximum to allocate on
-                        this node.  May exceed installed physical memory if
-                        oversubscription is the desired behavior.
+        :param context: security context
+        :param instance_ref: instance to reserve resources for
+        :param limits: Dict of oversubscription limits for memory, disk,
+                       and CPUs.
         :param timeout: How long, in seconds, the operation that requires
                         these resources should take to actually allocate what
                         it needs from the hypervisor.  If the timeout is
@@ -177,71 +151,142 @@ class ResourceTracker(object):
                   compute operation is finished. Returns None if the claim
                   failed.
         """
-
-        return self._do_begin_resource_claim(context, memory_mb, disk_gb,
-                memory_mb_limit, timeout, *args, **kwargs)
-
-    def _do_begin_resource_claim(self, context, memory_mb, disk_gb,
-        memory_mb_limit=None, timeout=None, *args, **kwargs):
-
         if self.disabled:
             return
 
+        if not limits:
+            limits = {}
+
         if not timeout:
             timeout = FLAGS.claim_timeout_seconds
 
-        memory_mb = abs(memory_mb)
-        disk_gb = abs(disk_gb)
+        # If an individual limit is None, the resource will be considered
+        # unlimited:
+        memory_mb_limit = limits.get('memory_mb')
+        disk_gb_limit = limits.get('disk_gb')
+        vcpu_limit = limits.get('vcpu')
+
+        memory_mb = instance_ref['memory_mb']
+        disk_gb = instance_ref['root_gb'] + instance_ref['ephemeral_gb']
+        vcpus = instance_ref['vcpus']
 
         msg = _("Attempting claim: memory %(memory_mb)d MB, disk %(disk_gb)d "
-                "GB, mem limit %(memory_mb_limit)s") % locals()
+                "GB, VCPUs %(vcpus)d") % locals()
         LOG.audit(msg)
 
-        if not memory_mb_limit:
-            # default to total memory:
-            memory_mb_limit = self.compute_node['memory_mb']
+        # Test for resources:
+        if not self._can_claim_memory(memory_mb, memory_mb_limit):
+            return
 
-        free_ram_mb = memory_mb_limit - self.compute_node['memory_mb_used']
+        if not self._can_claim_disk(disk_gb, disk_gb_limit):
+            return
 
+        if not self._can_claim_cpu(vcpus, vcpu_limit):
+            return
+
+        # keep track of this claim until we know whether the compute operation
+        # was successful/completed:
+        claim = Claim(instance_ref, timeout)
+        self.claims[claim.claim_id] = claim
+
+        # Mark resources in-use and update stats
+        self._update_usage_from_instance(self.compute_node, instance_ref)
+
+        # persist changes to the compute node:
+        self._update(context, self.compute_node)
+        return claim
+
+    def _can_claim_memory(self, memory_mb, memory_mb_limit):
+        """Test if memory needed for a claim can be safely allocated"""
         # Installed memory and usage info:
         msg = _("Total memory: %(total_mem)d MB, used: %(used_mem)d MB, free: "
-                "%(free_mem)d") % dict(
+                "%(free_mem)d MB") % dict(
                         total_mem=self.compute_node['memory_mb'],
                         used_mem=self.compute_node['memory_mb_used'],
                         free_mem=self.compute_node['local_gb_used'])
         LOG.audit(msg)
 
+        if memory_mb_limit is None:
+            # treat memory as unlimited:
+            LOG.audit(_("Memory limit not specified, defaulting to unlimited"))
+            return True
+
+        free_ram_mb = memory_mb_limit - self.compute_node['memory_mb_used']
+
         # Oversubscribed memory policy info:
-        msg = _("Limit: %(memory_mb_limit)d MB, free: %(free_ram_mb)d") % \
-                locals()
+        msg = _("Memory limit: %(memory_mb_limit)d MB, free: "
+                "%(free_ram_mb)d MB") % locals()
         LOG.audit(msg)
 
-        if memory_mb > free_ram_mb:
+        can_claim_mem = memory_mb <= free_ram_mb
+
+        if not can_claim_mem:
             msg = _("Unable to claim resources.  Free memory %(free_ram_mb)d "
                     "MB < requested memory %(memory_mb)d MB") % locals()
             LOG.info(msg)
-            return None
 
-        if disk_gb > self.compute_node['free_disk_gb']:
+        return can_claim_mem
+
+    def _can_claim_disk(self, disk_gb, disk_gb_limit):
+        """Test if disk space needed can be safely allocated"""
+        # Installed disk and usage info:
+        msg = _("Total disk: %(total_disk)d GB, used: %(used_disk)d GB, free: "
+                "%(free_disk)d GB") % dict(
+                        total_disk=self.compute_node['local_gb'],
+                        used_disk=self.compute_node['local_gb_used'],
+                        free_disk=self.compute_node['free_disk_gb'])
+        LOG.audit(msg)
+
+        if disk_gb_limit is None:
+            # treat disk as unlimited:
+            LOG.audit(_("Disk limit not specified, defaulting to unlimited"))
+            return True
+
+        free_disk_gb = disk_gb_limit - self.compute_node['local_gb_used']
+
+        # Oversubscribed disk policy info:
+        msg = _("Disk limit: %(disk_gb_limit)d GB, free: "
+                "%(free_disk_gb)d GB") % locals()
+        LOG.audit(msg)
+
+        can_claim_disk = disk_gb <= free_disk_gb
+        if not can_claim_disk:
             msg = _("Unable to claim resources.  Free disk %(free_disk_gb)d GB"
                     " < requested disk %(disk_gb)d GB") % dict(
                             free_disk_gb=self.compute_node['free_disk_gb'],
                             disk_gb=disk_gb)
             LOG.info(msg)
-            return None
 
-        claim_id = self._get_next_id()
-        c = Claim(claim_id, memory_mb, disk_gb, timeout, *args, **kwargs)
+        return can_claim_disk
 
-        # adjust compute node usage values and save so scheduler will see it:
-        values = c.apply_claim(self.compute_node)
-        self.compute_node = self._update(context, values)
+    def _can_claim_cpu(self, vcpus, vcpu_limit):
+        """Test if CPUs can be safely allocated according to given policy."""
 
-        # keep track of this claim until we know whether the compute operation
-        # was successful/completed:
-        self.claims[claim_id] = c
-        return c
+        msg = _("Total VCPUs: %(total_vcpus)d, used: %(used_vcpus)d") \
+                % dict(total_vcpus=self.compute_node['vcpus'],
+                       used_vcpus=self.compute_node['vcpus_used'])
+        LOG.audit(msg)
 
+        if vcpu_limit is None:
+            # treat cpu as unlimited:
+            LOG.audit(_("VCPU limit not specified, defaulting to unlimited"))
+            return True
+
+        # Oversubscribed disk policy info:
+        msg = _("CPU limit: %(vcpu_limit)d") % locals()
+        LOG.audit(msg)
+
+        free_vcpus = vcpu_limit - self.compute_node['vcpus_used']
+        can_claim_cpu = vcpus <= free_vcpus
+
+        if not can_claim_cpu:
+            msg = _("Unable to claim resources.  Free CPU %(free_vcpus)d < "
+                    "requested CPU %(vcpus)d") % locals()
+            LOG.info(msg)
+
+        return can_claim_cpu
+
+    @utils.synchronized(COMPUTE_RESOURCE_SEMAPHORE)
     def finish_resource_claim(self, claim):
         """Indicate that the compute operation that previously claimed the
         resources identified by 'claim' has now completed and the resources
@@ -260,7 +305,7 @@ class ResourceTracker(object):
         if self.claims.pop(claim.claim_id, None):
             LOG.info(_("Finishing claim: %s") % claim)
         else:
-            LOG.info(_("Can't find claim %d.  It may have been 'finished' "
+            LOG.info(_("Can't find claim %s.  It may have been 'finished' "
                        "twice, or it has already timed out."), claim.claim_id)
 
     @utils.synchronized(COMPUTE_RESOURCE_SEMAPHORE)
@@ -278,27 +323,37 @@ class ResourceTracker(object):
         # un-claim the resources:
         if self.claims.pop(claim.claim_id, None):
             LOG.info(_("Aborting claim: %s") % claim)
-            values = claim.undo_claim(self.compute_node)
-            self.compute_node = self._update(context, values)
+            # flag the instance as deleted to revert the resource usage
+            # and associated stats:
+            claim.instance['vm_state'] = vm_states.DELETED
+            self._update_usage_from_instance(self.compute_node, claim.instance)
+            self._update(context, self.compute_node)
+
         else:
             # can't find the claim.  this may mean the claim already timed
             # out or it was already explicitly finished/aborted.
-            LOG.info(_("Claim %d not found.  It either timed out or was "
+            LOG.audit(_("Claim %s not found.  It either timed out or was "
                         "already explicitly finished/aborted"), claim.claim_id)
 
+    @utils.synchronized(COMPUTE_RESOURCE_SEMAPHORE)
+    def update_usage(self, context, instance):
+        """Update the resource usage and stats after a change in an
+        instance
+        """
+        if self.disabled:
+            return
+
+        # don't update usage for this instance unless it submitted a resource
+        # claim first:
+        uuid = instance['uuid']
+        if uuid in self.tracked_instances:
+            self._update_usage_from_instance(self.compute_node, instance)
+            self._update(context.elevated(), self.compute_node)
+
     @property
     def disabled(self):
         return self.compute_node is None
 
-    def free_resources(self, context):
-        """A compute operation finished freeing up resources.  Update compute
-        model to reflect updated resource usage.
-
-        (The hypervisor may not immediately 'GC' all resources, so ask directly
-        to see what's available to update the compute node model.)
-        """
-        self.update_available_resource(context.elevated())
-
     @utils.synchronized(COMPUTE_RESOURCE_SEMAPHORE)
     def update_available_resource(self, context):
         """Override in-memory calculations of compute node resource usage based
@@ -308,36 +363,33 @@ class ResourceTracker(object):
         declared a need for resources, but not necessarily retrieved them from
         the hypervisor layer yet.
         """
-        # ask hypervisor for its view of resource availability &
-        # usage:
         resources = self.driver.get_available_resource()
         if not resources:
             # The virt driver does not support this function
-            LOG.warn(_("Virt driver does not support "
+            LOG.audit(_("Virt driver does not support "
                 "'get_available_resource'  Compute tracking is disabled."))
             self.compute_node = None
             self.claims = {}
             return
 
-        # Confirm resources dictionary contains expected keys:
         self._verify_resources(resources)
 
-        resources['free_ram_mb'] = resources['memory_mb'] - \
-                                   resources['memory_mb_used']
-        resources['free_disk_gb'] = resources['local_gb'] - \
-                                    resources['local_gb_used']
+        self._report_hypervisor_resource_view(resources)
 
-        LOG.audit(_("free_ram_mb: %s") % resources['free_ram_mb'])
-        LOG.audit(_("free_disk_gb: %s") % resources['free_disk_gb'])
-        # Apply resource claims representing in-progress operations to
-        # 'resources'. This may over-estimate the amount of resources in use,
-        # at least until the next time 'update_available_resource' runs.
-        self._apply_claims(resources)
+        self._purge_expired_claims()
 
-        # also generate all load stats:
-        values = self._create_load_stats(context)
-        resources.update(values)
+        # Grab all instances assigned to this host:
+        filters = {'host': self.host, 'deleted': False}
+        instances = db.instance_get_all_by_filters(context, filters)
 
+        # Now calculate usage based on instance utilization:
+        self._update_usage_from_instances(resources, instances)
+        self._report_final_resource_view(resources)
+
+        self._sync_compute_node(context, resources)
+
+    def _sync_compute_node(self, context, resources):
+        """Create or update the compute node DB record"""
         if not self.compute_node:
             # we need a copy of the ComputeNode record:
             service = self._get_service(context)
@@ -352,80 +404,30 @@ class ResourceTracker(object):
         if not self.compute_node:
             # Need to create the ComputeNode record:
             resources['service_id'] = service['id']
-            self.compute_node = self._create(context, resources)
+            self._create(context, resources)
             LOG.info(_('Compute_service record created for %s ') % self.host)
 
         else:
             # just update the record:
-            self.compute_node = self._update(context, resources,
-                    prune_stats=True)
+            self._update(context, resources, prune_stats=True)
             LOG.info(_('Compute_service record updated for %s ') % self.host)
 
-    @utils.synchronized(COMPUTE_RESOURCE_SEMAPHORE)
-    def update_load_stats_for_instance(self, context, instance_ref):
-        """Update workload stats for the local compute host."""
-
-        if self.disabled:
-            return
-
-        values = {}
-        self.stats.update_stats_for_instance(instance_ref)
-        values['stats'] = self.stats
-
-        values['current_workload'] = self.stats.calculate_workload()
-        values['running_vms'] = self.stats.num_instances
-        values['vcpus_used'] = self.stats.num_vcpus_used
-
-        self.compute_node = self._update(context.elevated(), values)
-
-    def _apply_claims(self, resources):
-        """Apply in-progress resource claims to the 'resources' dict from the
-        virt layer
-        """
+    def _purge_expired_claims(self):
+        """Purge expired resource claims"""
         for claim_id in self.claims.keys():
             c = self.claims[claim_id]
             if c.is_expired():
-                # if this claim is expired, just expunge it
-                LOG.info(_("Expiring resource claim %d"), claim_id)
+                # if this claim is expired, just expunge it.
+                # it is assumed that the instance will eventually get built
+                # successfully.
+                LOG.audit(_("Expiring resource claim %s"), claim_id)
                 self.claims.pop(claim_id)
-            else:
-                values = c.apply_claim(resources)
-                resources.update(values)
 
     def _create(self, context, values):
         """Create the compute node in the DB"""
         # initialize load stats from existing instances:
         compute_node = db.compute_node_create(context, values)
-        return compute_node
-
-    def _create_load_stats(self, context, instance=None):
-        """For each existing instance generate load stats for the compute
-        node record.
-        """
-        values = {}
-
-        if instance:
-            instances = [instance]
-        else:
-            self.stats.clear()  # re-generating all, so clear old stats
-
-            # grab all instances that are not yet DELETED
-            filters = {'host': self.host, 'deleted': False}
-            instances = db.instance_get_all_by_filters(context, filters)
-
-        for instance in instances:
-            self.stats.update_stats_for_instance(instance)
-
-        values['current_workload'] = self.stats.calculate_workload()
-        values['running_vms'] = self.stats.num_instances
-        values['vcpus_used'] = self.stats.num_vcpus_used
-        values['stats'] = self.stats
-        return values
-
-    def _get_next_id(self):
-        next_id = self.next_claim_id
-        self.next_claim_id += 1
-        return next_id
+        self.compute_node = dict(compute_node)
 
     def _get_service(self, context):
         try:
@@ -434,10 +436,105 @@ class ResourceTracker(object):
         except exception.NotFound:
             LOG.warn(_("No service record for host %s"), self.host)
 
+    def _report_hypervisor_resource_view(self, resources):
+        """Log the hypervisor's view of free memory in and free disk.
+        This is just a snapshot of resource usage recorded by the
+        virt driver.
+        """
+        free_ram_mb = resources['memory_mb'] - resources['memory_mb_used']
+        free_disk_gb = resources['local_gb'] - resources['local_gb_used']
+
+        LOG.debug(_("Hypervisor: free ram (MB): %s") % free_ram_mb)
+        LOG.debug(_("Hypervisor: free disk (GB): %s") % free_disk_gb)
+
+        vcpus = resources['vcpus']
+        if vcpus:
+            free_vcpus = vcpus - resources['vcpus_used']
+            LOG.debug(_("Hypervisor: free VCPUs: %s") % free_vcpus)
+        else:
+            LOG.debug(_("Hypervisor: VCPU information unavailable"))
+
+    def _report_final_resource_view(self, resources):
+        """Report final calculate of free memory and free disk including
+        instance calculations and in-progress resource claims.  These
+        values will be exposed via the compute node table to the scheduler.
+        """
+        LOG.audit(_("Free ram (MB): %s") % resources['free_ram_mb'])
+        LOG.audit(_("Free disk (GB): %s") % resources['free_disk_gb'])
+
+        vcpus = resources['vcpus']
+        if vcpus:
+            free_vcpus = vcpus - resources['vcpus_used']
+            LOG.audit(_("Free VCPUS: %s") % free_vcpus)
+        else:
+            LOG.audit(_("Free VCPU information unavailable"))
+
     def _update(self, context, values, prune_stats=False):
         """Persist the compute node updates to the DB"""
-        return db.compute_node_update(context, self.compute_node['id'],
-                values, prune_stats)
+        compute_node = db.compute_node_update(context,
+                self.compute_node['id'], values, prune_stats)
+        self.compute_node = dict(compute_node)
+
+    def _update_usage_from_instance(self, resources, instance):
+        """Update usage for a single instance."""
+
+        uuid = instance['uuid']
+        is_new_instance = uuid not in self.tracked_instances
+        is_deleted_instance = instance['vm_state'] == vm_states.DELETED
+
+        if is_new_instance:
+            self.tracked_instances[uuid] = 1
+            sign = 1
+
+        if instance['vm_state'] == vm_states.DELETED:
+            self.tracked_instances.pop(uuid)
+            sign = -1
+
+        self.stats.update_stats_for_instance(instance)
+
+        # if it's a new or deleted instance:
+        if is_new_instance or is_deleted_instance:
+            # new instance, update compute node resource usage:
+            resources['memory_mb_used'] += sign * instance['memory_mb']
+            resources['local_gb_used'] += sign * instance['root_gb']
+            resources['local_gb_used'] += sign * instance['ephemeral_gb']
+
+            # free ram and disk may be negative, depending on policy:
+            resources['free_ram_mb'] = (resources['memory_mb'] -
+                                        resources['memory_mb_used'])
+            resources['free_disk_gb'] = (resources['local_gb'] -
+                                         resources['local_gb_used'])
+
+            resources['running_vms'] = self.stats.num_instances
+            resources['vcpus_used'] = self.stats.num_vcpus_used
+
+        resources['current_workload'] = self.stats.calculate_workload()
+        resources['stats'] = self.stats
+
+    def _update_usage_from_instances(self, resources, instances):
+        """Calculate resource usage based on instance utilization.  This is
+        different than the hypervisor's view as it will account for all
+        instances assigned to the local compute host, even if they are not
+        currently powered on.
+        """
+        self.tracked_instances.clear()
+
+        # purge old stats
+        self.stats.clear()
+
+        # set some intiial values, reserve room for host/hypervisor:
+        resources['local_gb_used'] = FLAGS.reserved_host_disk_mb / 1024
+        resources['memory_mb_used'] = FLAGS.reserved_host_memory_mb
+        resources['vcpus_used'] = 0
+        resources['free_ram_mb'] = (resources['memory_mb'] -
+                                    resources['memory_mb_used'])
+        resources['free_disk_gb'] = (resources['local_gb'] -
+                                     resources['local_gb_used'])
+        resources['current_workload'] = 0
+        resources['running_vms'] = 0
+
+        for instance in instances:
+            self._update_usage_from_instance(resources, instance)
 
     def _verify_resources(self, resources):
         resource_keys = ["vcpus", "memory_mb", "local_gb", "cpu_info",
diff --git a/nova/db/sqlalchemy/api.py b/nova/db/sqlalchemy/api.py
index 1c79c124d891..3798cade8e54 100644
--- a/nova/db/sqlalchemy/api.py
+++ b/nova/db/sqlalchemy/api.py
@@ -47,8 +47,6 @@ from sqlalchemy.sql.expression import literal_column
 from sqlalchemy.sql import func
 
 FLAGS = flags.FLAGS
-flags.DECLARE('reserved_host_disk_mb', 'nova.scheduler.host_manager')
-flags.DECLARE('reserved_host_memory_mb', 'nova.scheduler.host_manager')
 
 LOG = logging.getLogger(__name__)
 
diff --git a/nova/scheduler/filter_scheduler.py b/nova/scheduler/filter_scheduler.py
index 371aebf5377a..b2928177df7a 100644
--- a/nova/scheduler/filter_scheduler.py
+++ b/nova/scheduler/filter_scheduler.py
@@ -132,6 +132,9 @@ class FilterScheduler(driver.Scheduler):
         # Add a retry entry for the selected compute host:
         self._add_retry_host(filter_properties, weighted_host.host_state.host)
 
+        self._add_oversubscription_policy(filter_properties,
+                weighted_host.host_state)
+
         payload = dict(request_spec=request_spec,
                        weighted_host=weighted_host.to_dict(),
                        instance_id=instance_uuid)
@@ -160,6 +163,9 @@ class FilterScheduler(driver.Scheduler):
         hosts = retry['hosts']
         hosts.append(host)
 
+    def _add_oversubscription_policy(self, filter_properties, host_state):
+        filter_properties['limits'] = host_state.limits
+
     def _get_configuration_options(self):
         """Fetch options dictionary. Broken out for testing."""
         return self.options.get_configuration()
diff --git a/nova/scheduler/filters/core_filter.py b/nova/scheduler/filters/core_filter.py
index 5af68bc9fac8..98b0930d983e 100644
--- a/nova/scheduler/filters/core_filter.py
+++ b/nova/scheduler/filters/core_filter.py
@@ -47,4 +47,10 @@ class CoreFilter(filters.BaseHostFilter):
 
         instance_vcpus = instance_type['vcpus']
         vcpus_total = host_state.vcpus_total * FLAGS.cpu_allocation_ratio
+
+        # Only provide a VCPU limit to compute if the virt driver is reporting
+        # an accurate count of installed VCPUs. (XenServer driver does not)
+        if vcpus_total > 0:
+            host_state.limits['vcpu'] = vcpus_total
+
         return (vcpus_total - host_state.vcpus_used) >= instance_vcpus
diff --git a/nova/scheduler/filters/disk_filter.py b/nova/scheduler/filters/disk_filter.py
new file mode 100644
index 000000000000..88b8c3377e20
--- /dev/null
+++ b/nova/scheduler/filters/disk_filter.py
@@ -0,0 +1,54 @@
+# Copyright (c) 2012 OpenStack, LLC.
+# All Rights Reserved.
+#
+#    Licensed under the Apache License, Version 2.0 (the "License"); you may
+#    not use this file except in compliance with the License. You may obtain
+#    a copy of the License at
+#
+#         http://www.apache.org/licenses/LICENSE-2.0
+#
+#    Unless required by applicable law or agreed to in writing, software
+#    distributed under the License is distributed on an "AS IS" BASIS, WITHOUT
+#    WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied. See the
+#    License for the specific language governing permissions and limitations
+#    under the License.
+
+from nova import flags
+from nova.openstack.common import cfg
+from nova.openstack.common import log as logging
+from nova.scheduler import filters
+
+LOG = logging.getLogger(__name__)
+
+disk_allocation_ratio_opt = cfg.FloatOpt("disk_allocation_ratio", default=1.0,
+                         help="virtual disk to physical disk allocation ratio")
+
+FLAGS = flags.FLAGS
+FLAGS.register_opt(disk_allocation_ratio_opt)
+
+
+class DiskFilter(filters.BaseHostFilter):
+    """Disk Filter with over subscription flag"""
+
+    def host_passes(self, host_state, filter_properties):
+        """Filter based on disk usage"""
+        instance_type = filter_properties.get('instance_type')
+        requested_disk = 1024 * (instance_type['root_gb'] +
+                                 instance_type['ephemeral_gb'])
+
+        free_disk_mb = host_state.free_disk_mb
+        total_usable_disk_mb = host_state.total_usable_disk_gb * 1024
+
+        disk_mb_limit = total_usable_disk_mb * FLAGS.disk_allocation_ratio
+        used_disk_mb = total_usable_disk_mb - free_disk_mb
+        usable_disk_mb = disk_mb_limit - used_disk_mb
+
+        if not usable_disk_mb >= requested_disk:
+            LOG.debug(_("%(host_state)s does not have %(requested_disk)s MB "
+                    "usable disk, it only has %(usable_disk_mb)s MB usable "
+                    "disk."), locals())
+            return False
+
+        disk_gb_limit = disk_mb_limit / 1024
+        host_state.limits['disk_gb'] = disk_gb_limit
+        return True
diff --git a/nova/scheduler/filters/ram_filter.py b/nova/scheduler/filters/ram_filter.py
index 8fb89bf5b4ae..22ba0252ca85 100644
--- a/nova/scheduler/filters/ram_filter.py
+++ b/nova/scheduler/filters/ram_filter.py
@@ -39,17 +39,15 @@ class RamFilter(filters.BaseHostFilter):
         free_ram_mb = host_state.free_ram_mb
         total_usable_ram_mb = host_state.total_usable_ram_mb
 
-        oversubscribed_ram_limit_mb = (total_usable_ram_mb *
-                FLAGS.ram_allocation_ratio)
+        memory_mb_limit = total_usable_ram_mb * FLAGS.ram_allocation_ratio
         used_ram_mb = total_usable_ram_mb - free_ram_mb
-        usable_ram = oversubscribed_ram_limit_mb - used_ram_mb
+        usable_ram = memory_mb_limit - used_ram_mb
         if not usable_ram >= requested_ram:
             LOG.debug(_("%(host_state)s does not have %(requested_ram)s MB "
                     "usable ram, it only has %(usable_ram)s MB usable ram."),
                     locals())
             return False
 
-        # save oversubscribe ram limit so the compute host can verify
-        # memory availability on builds:
-        filter_properties['memory_mb_limit'] = oversubscribed_ram_limit_mb
+        # save oversubscription limit for compute node to test against:
+        host_state.limits['memory_mb'] = memory_mb_limit
         return True
diff --git a/nova/scheduler/host_manager.py b/nova/scheduler/host_manager.py
index 695189881d54..7b6192c01c92 100644
--- a/nova/scheduler/host_manager.py
+++ b/nova/scheduler/host_manager.py
@@ -27,14 +27,7 @@ from nova.openstack.common import log as logging
 from nova.openstack.common import timeutils
 from nova.scheduler import filters
 
-
 host_manager_opts = [
-    cfg.IntOpt('reserved_host_disk_mb',
-               default=0,
-               help='Amount of disk in MB to reserve for host/dom0'),
-    cfg.IntOpt('reserved_host_memory_mb',
-               default=512,
-               help='Amount of memory in MB to reserve for host/dom0'),
     cfg.MultiStrOpt('scheduler_available_filters',
             default=['nova.scheduler.filters.standard_filters'],
             help='Filter classes available to the scheduler which may '
@@ -112,32 +105,31 @@ class HostState(object):
         self.service = ReadOnlyDict(service)
         # Mutable available resources.
         # These will change as resources are virtually "consumed".
+        self.total_usable_disk_gb = 0
+        self.disk_mb_used = 0
         self.free_ram_mb = 0
         self.free_disk_mb = 0
         self.vcpus_total = 0
         self.vcpus_used = 0
 
+        # Resource oversubscription values for the compute host:
+        self.limits = {}
+
     def update_from_compute_node(self, compute):
         """Update information about a host from its compute_node info."""
-        all_disk_mb = compute['local_gb'] * 1024
         all_ram_mb = compute['memory_mb']
 
         # Assume virtual size is all consumed by instances if use qcow2 disk.
         least = compute.get('disk_available_least')
         free_disk_mb = least if least is not None else compute['free_disk_gb']
         free_disk_mb *= 1024
-        free_ram_mb = compute['free_ram_mb']
 
-        if FLAGS.reserved_host_disk_mb > 0:
-            all_disk_mb -= FLAGS.reserved_host_disk_mb
-            free_disk_mb -= FLAGS.reserved_host_disk_mb
-        if FLAGS.reserved_host_memory_mb > 0:
-            all_ram_mb -= FLAGS.reserved_host_memory_mb
-            free_ram_mb -= FLAGS.reserved_host_memory_mb
+        self.disk_mb_used = compute['local_gb_used'] * 1024
 
         #NOTE(jogo) free_ram_mb can be negative
-        self.free_ram_mb = free_ram_mb
+        self.free_ram_mb = compute['free_ram_mb']
         self.total_usable_ram_mb = all_ram_mb
+        self.total_usable_disk_gb = compute['local_gb']
         self.free_disk_mb = free_disk_mb
         self.vcpus_total = compute['vcpus']
         self.vcpus_used = compute['vcpus_used']
diff --git a/nova/tests/compute/fake_resource_tracker.py b/nova/tests/compute/fake_resource_tracker.py
index faba13bab38a..9c404fbc0529 100644
--- a/nova/tests/compute/fake_resource_tracker.py
+++ b/nova/tests/compute/fake_resource_tracker.py
@@ -22,11 +22,10 @@ class FakeResourceTracker(resource_tracker.ResourceTracker):
     """Version without a DB requirement"""
 
     def _create(self, context, values):
-        return values
+        self.compute_node = values
 
     def _update(self, context, values, prune_stats=False):
         self.compute_node.update(values)
-        return self.compute_node
 
     def _get_service(self, context):
         return {
diff --git a/nova/tests/compute/test_compute.py b/nova/tests/compute/test_compute.py
index 14edaa7a0b25..105ee9f44844 100644
--- a/nova/tests/compute/test_compute.py
+++ b/nova/tests/compute/test_compute.py
@@ -275,23 +275,36 @@ class ComputeTestCase(BaseTestCase):
         finally:
             db.instance_destroy(self.context, instance['uuid'])
 
-    def test_create_instance_insufficient_memory(self):
+    def test_create_instance_unlimited_memory(self):
+        """Default of memory limit=None is unlimited"""
+        self.flags(reserved_host_disk_mb=0, reserved_host_memory_mb=0)
+        self.compute.resource_tracker.update_available_resource(self.context)
         params = {"memory_mb": 999999999999}
+        filter_properties = {'limits': {'memory_mb': None}}
         instance = self._create_fake_instance(params)
-        self.assertRaises(exception.ComputeResourcesUnavailable,
-                self.compute.run_instance, self.context, instance=instance)
+        self.compute.run_instance(self.context, instance=instance,
+                filter_properties=filter_properties)
+        self.assertEqual(999999999999,
+                self.compute.resource_tracker.compute_node['memory_mb_used'])
 
-    def test_create_instance_insufficient_disk(self):
+    def test_create_instance_unlimited_disk(self):
+        self.flags(reserved_host_disk_mb=0, reserved_host_memory_mb=0)
+        self.compute.resource_tracker.update_available_resource(self.context)
         params = {"root_gb": 999999999999,
                   "ephemeral_gb": 99999999999}
+        filter_properties = {'limits': {'disk_gb': None}}
         instance = self._create_fake_instance(params)
-        self.assertRaises(exception.ComputeResourcesUnavailable,
-                self.compute.run_instance, self.context, instance=instance)
+        self.compute.run_instance(self.context, instance=instance,
+                filter_properties=filter_properties)
 
     def test_create_multiple_instances_then_starve(self):
+        self.flags(reserved_host_disk_mb=0, reserved_host_memory_mb=0)
+        self.compute.resource_tracker.update_available_resource(self.context)
+        filter_properties = {'limits': {'memory_mb': 4096, 'disk_gb': 1000}}
         params = {"memory_mb": 1024, "root_gb": 128, "ephemeral_gb": 128}
         instance = self._create_fake_instance(params)
-        self.compute.run_instance(self.context, instance=instance)
+        self.compute.run_instance(self.context, instance=instance,
+                                  filter_properties=filter_properties)
         self.assertEquals(1024,
                 self.compute.resource_tracker.compute_node['memory_mb_used'])
         self.assertEquals(256,
@@ -299,7 +312,8 @@ class ComputeTestCase(BaseTestCase):
 
         params = {"memory_mb": 2048, "root_gb": 256, "ephemeral_gb": 256}
         instance = self._create_fake_instance(params)
-        self.compute.run_instance(self.context, instance=instance)
+        self.compute.run_instance(self.context, instance=instance,
+                                  filter_properties=filter_properties)
         self.assertEquals(3072,
                 self.compute.resource_tracker.compute_node['memory_mb_used'])
         self.assertEquals(768,
@@ -308,11 +322,15 @@ class ComputeTestCase(BaseTestCase):
         params = {"memory_mb": 8192, "root_gb": 8192, "ephemeral_gb": 8192}
         instance = self._create_fake_instance(params)
         self.assertRaises(exception.ComputeResourcesUnavailable,
-                self.compute.run_instance, self.context, instance=instance)
+                self.compute.run_instance, self.context, instance=instance,
+                filter_properties=filter_properties)
 
     def test_create_instance_with_oversubscribed_ram(self):
         """Test passing of oversubscribed ram policy from the scheduler."""
 
+        self.flags(reserved_host_disk_mb=0, reserved_host_memory_mb=0)
+        self.compute.resource_tracker.update_available_resource(self.context)
+
         # get total memory as reported by virt driver:
         resources = self.compute.driver.get_available_resource()
         total_mem_mb = resources['memory_mb']
@@ -326,7 +344,8 @@ class ComputeTestCase(BaseTestCase):
                   "ephemeral_gb": 128}
         instance = self._create_fake_instance(params)
 
-        filter_properties = dict(memory_mb_limit=oversub_limit_mb)
+        limits = {'memory_mb': oversub_limit_mb}
+        filter_properties = {'limits': limits}
         self.compute.run_instance(self.context, instance=instance,
                 filter_properties=filter_properties)
 
@@ -337,6 +356,9 @@ class ComputeTestCase(BaseTestCase):
         """Test passing of oversubscribed ram policy from the scheduler, but
         with insufficient memory.
         """
+        self.flags(reserved_host_disk_mb=0, reserved_host_memory_mb=0)
+        self.compute.resource_tracker.update_available_resource(self.context)
+
         # get total memory as reported by virt driver:
         resources = self.compute.driver.get_available_resource()
         total_mem_mb = resources['memory_mb']
@@ -350,12 +372,115 @@ class ComputeTestCase(BaseTestCase):
                   "ephemeral_gb": 128}
         instance = self._create_fake_instance(params)
 
-        filter_properties = dict(memory_mb_limit=oversub_limit_mb)
+        filter_properties = {'limits': {'memory_mb': oversub_limit_mb}}
 
         self.assertRaises(exception.ComputeResourcesUnavailable,
                 self.compute.run_instance, self.context, instance=instance,
                 filter_properties=filter_properties)
 
+    def test_create_instance_with_oversubscribed_cpu(self):
+        """Test passing of oversubscribed cpu policy from the scheduler."""
+
+        self.flags(reserved_host_disk_mb=0, reserved_host_memory_mb=0)
+        self.compute.resource_tracker.update_available_resource(self.context)
+        limits = {'vcpu': 3}
+        filter_properties = {'limits': limits}
+
+        # get total memory as reported by virt driver:
+        resources = self.compute.driver.get_available_resource()
+        self.assertEqual(1, resources['vcpus'])
+
+        # build an instance, specifying an amount of memory that exceeds
+        # total_mem_mb, but is less than the oversubscribed limit:
+        params = {"memory_mb": 10, "root_gb": 1,
+                  "ephemeral_gb": 1, "vcpus": 2}
+        instance = self._create_fake_instance(params)
+        self.compute.run_instance(self.context, instance=instance,
+                filter_properties=filter_properties)
+
+        self.assertEqual(2,
+                self.compute.resource_tracker.compute_node['vcpus_used'])
+
+        # create one more instance:
+        params = {"memory_mb": 10, "root_gb": 1,
+                  "ephemeral_gb": 1, "vcpus": 1}
+        instance = self._create_fake_instance(params)
+        self.compute.run_instance(self.context, instance=instance,
+                filter_properties=filter_properties)
+
+        self.assertEqual(3,
+                self.compute.resource_tracker.compute_node['vcpus_used'])
+
+        # delete the instance:
+        instance['vm_state'] = vm_states.DELETED
+        self.compute.resource_tracker.update_usage(self.context,
+                instance=instance)
+
+        self.assertEqual(2,
+                self.compute.resource_tracker.compute_node['vcpus_used'])
+
+        # now oversubscribe vcpus and fail:
+        params = {"memory_mb": 10, "root_gb": 1,
+                  "ephemeral_gb": 1, "vcpus": 2}
+        instance = self._create_fake_instance(params)
+
+        limits = {'vcpu': 3}
+        filter_properties = {'limits': limits}
+        self.assertRaises(exception.ComputeResourcesUnavailable,
+                self.compute.run_instance, self.context, instance=instance,
+                filter_properties=filter_properties)
+
+    def test_create_instance_with_oversubscribed_disk(self):
+        """Test passing of oversubscribed disk policy from the scheduler."""
+
+        self.flags(reserved_host_disk_mb=0, reserved_host_memory_mb=0)
+        self.compute.resource_tracker.update_available_resource(self.context)
+
+        # get total memory as reported by virt driver:
+        resources = self.compute.driver.get_available_resource()
+        total_disk_gb = resources['local_gb']
+
+        oversub_limit_gb = total_disk_gb * 1.5
+        instance_gb = int(total_disk_gb * 1.45)
+
+        # build an instance, specifying an amount of disk that exceeds
+        # total_disk_gb, but is less than the oversubscribed limit:
+        params = {"root_gb": instance_gb, "memory_mb": 10}
+        instance = self._create_fake_instance(params)
+
+        limits = {'disk_gb': oversub_limit_gb}
+        filter_properties = {'limits': limits}
+        self.compute.run_instance(self.context, instance=instance,
+                filter_properties=filter_properties)
+
+        self.assertEqual(instance_gb,
+                self.compute.resource_tracker.compute_node['local_gb_used'])
+
+    def test_create_instance_with_oversubscribed_disk_fail(self):
+        """Test passing of oversubscribed disk policy from the scheduler, but
+        with insufficient disk.
+        """
+        self.flags(reserved_host_disk_mb=0, reserved_host_memory_mb=0)
+        self.compute.resource_tracker.update_available_resource(self.context)
+
+        # get total memory as reported by virt driver:
+        resources = self.compute.driver.get_available_resource()
+        total_disk_gb = resources['local_gb']
+
+        oversub_limit_gb = total_disk_gb * 1.5
+        instance_gb = int(total_disk_gb * 1.55)
+
+        # build an instance, specifying an amount of disk that exceeds
+        # total_disk_gb, but is less than the oversubscribed limit:
+        params = {"root_gb": instance_gb, "memory_mb": 10}
+        instance = self._create_fake_instance(params)
+
+        limits = {'disk_gb': oversub_limit_gb}
+        filter_properties = {'limits': limits}
+        self.assertRaises(exception.ComputeResourcesUnavailable,
+                self.compute.run_instance, self.context, instance=instance,
+                filter_properties=filter_properties)
+
     def test_default_access_ip(self):
         self.flags(default_access_ip_network_name='test1')
         fake_network.unset_stub_network_methods(self.stubs)
diff --git a/nova/tests/compute/test_resource_tracker.py b/nova/tests/compute/test_resource_tracker.py
index 092029fa66a0..0af0e42842d4 100644
--- a/nova/tests/compute/test_resource_tracker.py
+++ b/nova/tests/compute/test_resource_tracker.py
@@ -17,17 +17,20 @@
 
 """Tests for compute resource tracking"""
 
-import copy
+import uuid
 
 from nova.compute import resource_tracker
 from nova.compute import task_states
 from nova.compute import vm_states
 from nova import db
 from nova import exception
+from nova.openstack.common import log as logging
 from nova.openstack.common import timeutils
 from nova import test
 from nova.virt import driver
 
+LOG = logging.getLogger(__name__)
+
 
 class FakeContext(object):
     def __init__(self, is_admin=False):
@@ -75,20 +78,12 @@ class BaseTestCase(test.TestCase):
     def setUp(self):
         super(BaseTestCase, self).setUp()
 
+        self.flags(reserved_host_disk_mb=0,
+                   reserved_host_memory_mb=0)
+
         self.context = FakeContext()
 
-        self.instance_ref = {
-            "memory_mb": 1,
-            "root_gb": 1,
-            "ephemeral_gb": 1,
-            "vm_state": vm_states.BUILDING,
-            "task_state": None,
-            "os_type": "Linux",
-            "project_id": "1234",
-            "vcpus": 1,
-            "uuid": "12-34-56-78-90",
-        }
-
+        self._instances = []
         self.stubs.Set(db, 'instance_get_all_by_filters',
                 self._fake_instance_get_all_by_filters)
 
@@ -126,8 +121,26 @@ class BaseTestCase(test.TestCase):
         }
         return service
 
+    def _fake_instance(self, *args, **kwargs):
+        instance = {
+            'uuid': str(uuid.uuid1()),
+            'vm_state': vm_states.BUILDING,
+            'task_state': None,
+            'memory_mb': 2,
+            'root_gb': 3,
+            'ephemeral_gb': 1,
+            'os_type': 'Linux',
+            'project_id': '123456',
+            'vcpus': 1,
+            'host': None,
+        }
+        instance.update(kwargs)
+
+        self._instances.append(instance)
+        return instance
+
     def _fake_instance_get_all_by_filters(self, ctx, filters, **kwargs):
-        return []
+        return self._instances
 
     def _tracker(self, unsupported=False):
         host = "fakehost"
@@ -161,22 +174,16 @@ class UnsupportedDriverTestCase(BaseTestCase):
         claim = self.tracker.begin_resource_claim(self.context, 1, 1)
         self.assertEqual(None, claim)
 
-    def testDisabledContextClaim(self):
-        # basic context manager variation:
-        with self.tracker.resource_claim(self.context, 1, 1):
-            pass
-        self.assertEqual(0, len(self.tracker.claims))
-
     def testDisabledInstanceClaim(self):
         # instance variation:
-        claim = self.tracker.begin_instance_resource_claim(self.context,
-                self.instance_ref)
+        instance = self._fake_instance()
+        claim = self.tracker.begin_resource_claim(self.context, instance)
         self.assertEqual(None, claim)
 
     def testDisabledInstanceContextClaim(self):
         # instance context manager variation:
-        with self.tracker.instance_resource_claim(self.context,
-                self.instance_ref):
+        instance = self._fake_instance()
+        with self.tracker.resource_claim(self.context, instance):
             pass
         self.assertEqual(0, len(self.tracker.claims))
 
@@ -187,10 +194,10 @@ class UnsupportedDriverTestCase(BaseTestCase):
         self.assertEqual(None, self.tracker.abort_resource_claim(self.context,
             None))
 
-    def testDisabledFreeResources(self):
-        self.tracker.free_resources(self.context)
-        self.assertTrue(self.tracker.disabled)
-        self.assertEqual(None, self.tracker.compute_node)
+    def testDisabledUpdateUsage(self):
+        instance = self._fake_instance(host='fakehost', memory_mb=5,
+                root_gb=10)
+        self.tracker.update_usage(self.context, instance)
 
 
 class MissingServiceTestCase(BaseTestCase):
@@ -253,9 +260,35 @@ class ResourceTestCase(BaseTestCase):
             prune_stats=False):
         self.updated = True
         values['stats'] = [{"key": "num_instances", "value": "1"}]
+
         self.compute.update(values)
         return self.compute
 
+    def testUpdateUseOnlyForTracked(self):
+        """Only update usage is a previous claim has added instance to
+        list of tracked instances.
+        """
+        instance = self._fake_instance(memory_mb=3, root_gb=1, ephemeral_gb=1,
+                task_state=None)
+        self.tracker.update_usage(self.context, instance)
+
+        self.assertEqual(0, self.tracker.compute_node['memory_mb_used'])
+        self.assertEqual(0, self.tracker.compute_node['local_gb_used'])
+        self.assertEqual(0, self.tracker.compute_node['current_workload'])
+
+        claim = self.tracker.begin_resource_claim(self.context, instance)
+        self.assertNotEqual(None, claim)
+        self.assertEqual(3, self.tracker.compute_node['memory_mb_used'])
+        self.assertEqual(2, self.tracker.compute_node['local_gb_used'])
+
+        # now update should actually take effect
+        instance['task_state'] = task_states.SCHEDULING
+        self.tracker.update_usage(self.context, instance)
+
+        self.assertEqual(3, self.tracker.compute_node['memory_mb_used'])
+        self.assertEqual(2, self.tracker.compute_node['local_gb_used'])
+        self.assertEqual(1, self.tracker.compute_node['current_workload'])
+
     def testFreeRamResourceValue(self):
         driver = FakeVirtDriver()
         mem_free = driver.memory_mb - driver.memory_mb_used
@@ -270,42 +303,109 @@ class ResourceTestCase(BaseTestCase):
         self.assertFalse(self.tracker.disabled)
         self.assertTrue(self.updated)
 
-    def testInsufficientMemoryClaim(self):
-        """Exceed memory limit of 5MB"""
-        claim = self.tracker.begin_resource_claim(self.context, memory_mb=2,
-                disk_gb=0)
+    def testCpuUnlimited(self):
+        """Test default of unlimited CPU"""
+        self.assertEqual(0, self.tracker.compute_node['vcpus_used'])
+        instance = self._fake_instance(memory_mb=1, root_gb=1, ephemeral_gb=1,
+                                       vcpus=100000)
+        claim = self.tracker.begin_resource_claim(self.context, instance)
         self.assertNotEqual(None, claim)
+        self.assertEqual(100000, self.tracker.compute_node['vcpus_used'])
 
-        claim = self.tracker.begin_resource_claim(self.context, memory_mb=3,
-                disk_gb=0)
+    def testCpuOversubscription(self):
+        """Test client-supplied oversubscription of CPU"""
+        self.assertEqual(1, self.tracker.compute_node['vcpus'])
+
+        instance = self._fake_instance(memory_mb=1, root_gb=1, ephemeral_gb=1,
+                                       vcpus=3)
+        limits = {'vcpu': 5}
+        claim = self.tracker.begin_resource_claim(self.context, instance,
+                limits)
         self.assertNotEqual(None, claim)
+        self.assertEqual(3, self.tracker.compute_node['vcpus_used'])
 
-        claim = self.tracker.begin_resource_claim(self.context, memory_mb=1,
-                disk_gb=0)
-        self.assertEqual(None, claim)
+    def testMemoryOversubscription(self):
+        """Test client-supplied oversubscription of memory"""
+        instance = self._fake_instance(memory_mb=8, root_gb=1, ephemeral_gb=1)
+        limits = {'memory_mb': 8}
+        claim = self.tracker.begin_resource_claim(self.context, instance,
+                limits)
+        self.assertNotEqual(None, claim)
+        self.assertEqual(8, self.tracker.compute_node['memory_mb_used'])
+        self.assertEqual(2, self.tracker.compute_node['local_gb_used'])
+
+    def testDiskOversubscription(self):
+        """Test client-supplied oversubscription of disk space"""
+        instance = self._fake_instance(memory_mb=1, root_gb=10, ephemeral_gb=1)
+        limits = {'disk_gb': 12}
+        claim = self.tracker.begin_resource_claim(self.context, instance,
+                limits)
+        self.assertNotEqual(None, claim)
+        self.assertEqual(1, self.tracker.compute_node['memory_mb_used'])
+        self.assertEqual(11, self.tracker.compute_node['local_gb_used'])
+
+    def testUnlimitedMemoryClaim(self):
+        """Test default of unlimited memory"""
+        instance = self._fake_instance(memory_mb=200000000000, root_gb=1,
+                                       ephemeral_gb=1)
+        claim = self.tracker.begin_resource_claim(self.context, instance)
+        self.assertNotEqual(None, claim)
+        self.assertEqual(200000000000,
+                         self.tracker.compute_node['memory_mb_used'])
 
     def testInsufficientMemoryClaimWithOversubscription(self):
         """Exceed oversubscribed memory limit of 10MB"""
-        claim = self.tracker.begin_resource_claim(self.context, memory_mb=10,
-                disk_gb=0, memory_mb_limit=10)
+        instance = self._fake_instance(memory_mb=10, root_gb=0,
+                ephemeral_gb=0)
+        limits = {'memory_mb': 10}
+        claim = self.tracker.begin_resource_claim(self.context, instance,
+                limits)
         self.assertNotEqual(None, claim)
 
-        claim = self.tracker.begin_resource_claim(self.context, memory_mb=1,
-                disk_gb=0, memory_mb_limit=10)
+        instance = self._fake_instance(memory_mb=1, root_gb=0,
+                ephemeral_gb=0)
+        limits = {'memory_mb': 10}
+        claim = self.tracker.begin_resource_claim(self.context, instance,
+                limits)
         self.assertEqual(None, claim)
 
-    def testInsufficientDiskClaim(self):
-        """Exceed disk limit of 5GB"""
-        claim = self.tracker.begin_resource_claim(self.context, memory_mb=0,
-                disk_gb=2)
+    def testUnlimitDiskClaim(self):
+        """Test default of unlimited disk space"""
+        instance = self._fake_instance(memory_mb=0, root_gb=200000000,
+                                       ephemeral_gb=0)
+        claim = self.tracker.begin_resource_claim(self.context, instance)
+        self.assertNotEqual(None, claim)
+        self.assertEqual(200000000, self.tracker.compute_node['local_gb_used'])
+
+    def testInsufficientDiskClaimWithOversubscription(self):
+        """Exceed oversubscribed disk limit of 10GB"""
+        instance = self._fake_instance(memory_mb=1, root_gb=4,
+                ephemeral_gb=5)  # 9 GB
+        limits = {'disk_gb': 10}
+        claim = self.tracker.begin_resource_claim(self.context, instance,
+                limits)
         self.assertNotEqual(None, claim)
 
-        claim = self.tracker.begin_resource_claim(self.context, memory_mb=0,
-                disk_gb=3)
-        self.assertNotEqual(None, claim)
+        instance = self._fake_instance(memory_mb=1, root_gb=1,
+                ephemeral_gb=1)  # 2 GB
+        limits = {'disk_gb': 10}
+        claim = self.tracker.begin_resource_claim(self.context, instance,
+                limits)
+        self.assertEqual(None, claim)
 
-        claim = self.tracker.begin_resource_claim(self.context, memory_mb=0,
-                disk_gb=5)
+    def testInsufficientCpuClaim(self):
+        instance = self._fake_instance(memory_mb=0, root_gb=0,
+                ephemeral_gb=0, vcpus=1)
+        claim = self.tracker.begin_resource_claim(self.context, instance)
+        self.assertNotEqual(None, claim)
+        self.assertEqual(1, self.tracker.compute_node['vcpus_used'])
+
+        instance = self._fake_instance(memory_mb=0, root_gb=0,
+                ephemeral_gb=0, vcpus=1)
+
+        limits = {'vcpu': 1}
+        claim = self.tracker.begin_resource_claim(self.context, instance,
+                limits)
         self.assertEqual(None, claim)
 
     def testClaimAndFinish(self):
@@ -317,8 +417,9 @@ class ResourceTestCase(BaseTestCase):
 
         claim_mem = 3
         claim_disk = 2
-        claim = self.tracker.begin_resource_claim(self.context, claim_mem,
-                claim_disk)
+        instance = self._fake_instance(memory_mb=claim_mem, root_gb=claim_disk,
+                ephemeral_gb=0)
+        claim = self.tracker.begin_resource_claim(self.context, instance)
 
         self.assertEqual(5, self.compute["memory_mb"])
         self.assertEqual(claim_mem, self.compute["memory_mb_used"])
@@ -334,35 +435,26 @@ class ResourceTestCase(BaseTestCase):
         driver.memory_mb_used = claim_mem
         driver.local_gb_used = claim_disk
 
-        # 2nd update compute node from the virt layer.  because the claim is
-        # in-progress (unfinished), the audit will actually mark the resources
-        # as unsubscribed:
         self.tracker.update_available_resource(self.context)
 
-        self.assertEqual(2 * claim_mem,
-                self.compute['memory_mb_used'])
-        self.assertEqual(5 - (2 * claim_mem),
-                self.compute['free_ram_mb'])
+        # confirm that resource usage is derived from instance usages,
+        # not virt layer:
+        self.assertEqual(claim_mem, self.compute['memory_mb_used'])
+        self.assertEqual(5 - claim_mem, self.compute['free_ram_mb'])
 
-        self.assertEqual(2 * claim_disk,
-                self.compute['local_gb_used'])
-        self.assertEqual(6 - (2 * claim_disk),
-                self.compute['free_disk_gb'])
+        self.assertEqual(claim_disk, self.compute['local_gb_used'])
+        self.assertEqual(6 - claim_disk, self.compute['free_disk_gb'])
 
         # Finally, finish the claimm and update from the virt layer again.
         # Resource usage will be consistent again:
         self.tracker.finish_resource_claim(claim)
         self.tracker.update_available_resource(self.context)
 
-        self.assertEqual(claim_mem,
-                self.compute['memory_mb_used'])
-        self.assertEqual(5 - claim_mem,
-                self.compute['free_ram_mb'])
+        self.assertEqual(claim_mem, self.compute['memory_mb_used'])
+        self.assertEqual(5 - claim_mem, self.compute['free_ram_mb'])
 
-        self.assertEqual(claim_disk,
-                self.compute['local_gb_used'])
-        self.assertEqual(6 - claim_disk,
-                self.compute['free_disk_gb'])
+        self.assertEqual(claim_disk, self.compute['local_gb_used'])
+        self.assertEqual(6 - claim_disk, self.compute['free_disk_gb'])
 
     def testClaimAndAbort(self):
         self.assertEqual(5, self.tracker.compute_node['memory_mb'])
@@ -373,8 +465,10 @@ class ResourceTestCase(BaseTestCase):
 
         claim_mem = 3
         claim_disk = 2
-        claim = self.tracker.begin_resource_claim(self.context, claim_mem,
-                claim_disk)
+        instance = self._fake_instance(memory_mb=claim_mem,
+                root_gb=claim_disk, ephemeral_gb=0)
+        claim = self.tracker.begin_resource_claim(self.context, instance)
+        self.assertNotEqual(None, claim)
 
         self.assertEqual(5, self.compute["memory_mb"])
         self.assertEqual(claim_mem, self.compute["memory_mb_used"])
@@ -398,14 +492,14 @@ class ResourceTestCase(BaseTestCase):
         """Test that old claims get cleaned up automatically if not finished
         or aborted explicitly.
         """
-        claim = self.tracker.begin_resource_claim(self.context, memory_mb=2,
-                disk_gb=2)
+        instance = self._fake_instance(memory_mb=2, root_gb=2, ephemeral_gb=0)
+        claim = self.tracker.begin_resource_claim(self.context, instance)
         claim.expire_ts = timeutils.utcnow_ts() - 1
         self.assertTrue(claim.is_expired())
 
         # and an unexpired claim
-        claim2 = self.tracker.begin_resource_claim(self.context, memory_mb=1,
-                disk_gb=1)
+        instance2 = self._fake_instance(memory_mb=1, root_gb=1, ephemeral_gb=0)
+        claim2 = self.tracker.begin_resource_claim(self.context, instance2)
 
         self.assertEqual(2, len(self.tracker.claims))
         self.assertEqual(2 + 1, self.tracker.compute_node['memory_mb_used'])
@@ -415,34 +509,30 @@ class ResourceTestCase(BaseTestCase):
         self.tracker.update_available_resource(self.context)
 
         self.assertEqual(1, len(self.tracker.claims))
-        self.assertEqual(1, self.tracker.compute_node['memory_mb_used'])
-        self.assertEqual(1, self.tracker.compute_node['local_gb_used'])
+        self.assertEqual(2, len(self.tracker.tracked_instances))
 
-        # and just call finish & abort to ensure expired claims do not cause
-        # any other explosions:
+        # the expired claim's instance is assumed to still exist, so the
+        # resources should be counted:
+        self.assertEqual(2 + 1, self.tracker.compute_node['memory_mb_used'])
+        self.assertEqual(2 + 1, self.tracker.compute_node['local_gb_used'])
+
+        # this abort should do nothing because the claim was purged due to
+        # expiration:
         self.tracker.abort_resource_claim(self.context, claim)
-        self.tracker.finish_resource_claim(claim)
+
+        # call finish on claim2:
+        self.tracker.finish_resource_claim(claim2)
+
+        # should have usage from both instances:
+        self.assertEqual(1 + 2, self.tracker.compute_node['memory_mb_used'])
+        self.assertEqual(1 + 2, self.tracker.compute_node['local_gb_used'])
 
     def testInstanceClaim(self):
-        self.tracker.begin_instance_resource_claim(self.context,
-                self.instance_ref)
+        instance = self._fake_instance(memory_mb=1, root_gb=0, ephemeral_gb=2)
+        self.tracker.begin_resource_claim(self.context, instance)
         self.assertEqual(1, self.tracker.compute_node['memory_mb_used'])
         self.assertEqual(2, self.tracker.compute_node['local_gb_used'])
 
-    def testContextClaim(self):
-        with self.tracker.resource_claim(self.context, memory_mb=1, disk_gb=1):
-            # <insert exciting things that utilize resources>
-            self.assertEqual(1, self.tracker.compute_node['memory_mb_used'])
-            self.assertEqual(1, self.tracker.compute_node['local_gb_used'])
-            self.assertEqual(1, self.compute['memory_mb_used'])
-            self.assertEqual(1, self.compute['local_gb_used'])
-
-        self.tracker.update_available_resource(self.context)
-        self.assertEqual(0, self.tracker.compute_node['memory_mb_used'])
-        self.assertEqual(0, self.tracker.compute_node['local_gb_used'])
-        self.assertEqual(0, self.compute['memory_mb_used'])
-        self.assertEqual(0, self.compute['local_gb_used'])
-
     def testContextClaimWithException(self):
         try:
             with self.tracker.resource_claim(self.context, memory_mb=1,
@@ -459,34 +549,63 @@ class ResourceTestCase(BaseTestCase):
         self.assertEqual(0, self.compute['local_gb_used'])
 
     def testInstanceContextClaim(self):
-        with self.tracker.instance_resource_claim(self.context,
-                self.instance_ref):
+        instance = self._fake_instance(memory_mb=1, root_gb=1, ephemeral_gb=1)
+        with self.tracker.resource_claim(self.context, instance):
             # <insert exciting things that utilize resources>
             self.assertEqual(1, self.tracker.compute_node['memory_mb_used'])
             self.assertEqual(2, self.tracker.compute_node['local_gb_used'])
             self.assertEqual(1, self.compute['memory_mb_used'])
             self.assertEqual(2, self.compute['local_gb_used'])
 
+        # after exiting claim context, build is marked as finished.  usage
+        # totals should be same:
         self.tracker.update_available_resource(self.context)
-        self.assertEqual(0, self.tracker.compute_node['memory_mb_used'])
-        self.assertEqual(0, self.tracker.compute_node['local_gb_used'])
-        self.assertEqual(0, self.compute['memory_mb_used'])
-        self.assertEqual(0, self.compute['local_gb_used'])
+        self.assertEqual(1, self.tracker.compute_node['memory_mb_used'])
+        self.assertEqual(2, self.tracker.compute_node['local_gb_used'])
+        self.assertEqual(1, self.compute['memory_mb_used'])
+        self.assertEqual(2, self.compute['local_gb_used'])
 
     def testUpdateLoadStatsForInstance(self):
         self.assertFalse(self.tracker.disabled)
         self.assertEqual(0, self.tracker.compute_node['current_workload'])
 
-        self.instance_ref['task_state'] = task_states.SCHEDULING
-        with self.tracker.instance_resource_claim(self.context,
-                self.instance_ref):
+        instance = self._fake_instance(task_state=task_states.SCHEDULING)
+        with self.tracker.resource_claim(self.context, instance):
             pass
 
         self.assertEqual(1, self.tracker.compute_node['current_workload'])
 
-        self.instance_ref['vm_state'] = vm_states.ACTIVE
-        self.instance_ref['task_state'] = None
+        instance['vm_state'] = vm_states.ACTIVE
+        instance['task_state'] = None
+        instance['host'] = 'fakehost'
 
-        self.tracker.update_load_stats_for_instance(self.context,
-                self.instance_ref)
+        self.tracker.update_usage(self.context, instance)
         self.assertEqual(0, self.tracker.compute_node['current_workload'])
+
+    def testCpuStats(self):
+        limits = {'disk_gb': 100, 'memory_mb': 100}
+        self.assertEqual(0, self.tracker.compute_node['vcpus_used'])
+
+        instance = self._fake_instance(vcpus=1)
+
+        # should not do anything until a claim is made:
+        self.tracker.update_usage(self.context, instance)
+        self.assertEqual(0, self.tracker.compute_node['vcpus_used'])
+
+        with self.tracker.resource_claim(self.context, instance, limits):
+            pass
+        self.assertEqual(1, self.tracker.compute_node['vcpus_used'])
+
+        # instance state can change without modifying vcpus in use:
+        instance['task_state'] = task_states.SCHEDULING
+        self.tracker.update_usage(self.context, instance)
+        self.assertEqual(1, self.tracker.compute_node['vcpus_used'])
+
+        instance = self._fake_instance(vcpus=10)
+        with self.tracker.resource_claim(self.context, instance, limits):
+            pass
+        self.assertEqual(11, self.tracker.compute_node['vcpus_used'])
+
+        instance['vm_state'] = vm_states.DELETED
+        self.tracker.update_usage(self.context, instance)
+        self.assertEqual(1, self.tracker.compute_node['vcpus_used'])
diff --git a/nova/tests/scheduler/fakes.py b/nova/tests/scheduler/fakes.py
index 27341a62c93e..29466fbe16bc 100644
--- a/nova/tests/scheduler/fakes.py
+++ b/nova/tests/scheduler/fakes.py
@@ -28,16 +28,20 @@ from nova.scheduler import host_manager
 COMPUTE_NODES = [
         dict(id=1, local_gb=1024, memory_mb=1024, vcpus=1,
              disk_available_least=512, free_ram_mb=512, vcpus_used=1,
-             free_disk_mb=512, service=dict(host='host1', disabled=False)),
+             free_disk_mb=512, local_gb_used=0,
+             service=dict(host='host1', disabled=False)),
         dict(id=2, local_gb=2048, memory_mb=2048, vcpus=2,
              disk_available_least=1024, free_ram_mb=1024, vcpus_used=2,
-             free_disk_mb=1024, service=dict(host='host2', disabled=True)),
+             free_disk_mb=1024, local_gb_used=0,
+             service=dict(host='host2', disabled=True)),
         dict(id=3, local_gb=4096, memory_mb=4096, vcpus=4,
              disk_available_least=3072, free_ram_mb=3072, vcpus_used=1,
-             free_disk_mb=3072, service=dict(host='host3', disabled=False)),
+             free_disk_mb=3072, local_gb_used=0,
+             service=dict(host='host3', disabled=False)),
         dict(id=4, local_gb=8192, memory_mb=8192, vcpus=8,
              disk_available_least=8192, free_ram_mb=8192, vcpus_used=0,
-             free_disk_mb=8192, service=dict(host='host4', disabled=False)),
+             free_disk_mb=8192, local_gb_used=0,
+             service=dict(host='host4', disabled=False)),
         # Broken entry
         dict(id=5, local_gb=1024, memory_mb=1024, vcpus=1, service=None),
 ]
diff --git a/nova/tests/scheduler/test_filter_scheduler.py b/nova/tests/scheduler/test_filter_scheduler.py
index 130251a0f34a..9e78f3a50733 100644
--- a/nova/tests/scheduler/test_filter_scheduler.py
+++ b/nova/tests/scheduler/test_filter_scheduler.py
@@ -216,7 +216,6 @@ class FilterSchedulerTestCase(test_scheduler.SchedulerTestCase):
         self.assertEqual(info['called'], 0)
 
     def test_get_cost_functions(self):
-        self.flags(reserved_host_memory_mb=128)
         fixture = fakes.FakeFilterScheduler()
         fns = fixture.get_cost_functions()
         self.assertEquals(len(fns), 1)
@@ -225,8 +224,9 @@ class FilterSchedulerTestCase(test_scheduler.SchedulerTestCase):
         hostinfo = host_manager.HostState('host', 'compute')
         hostinfo.update_from_compute_node(dict(memory_mb=1000,
                 local_gb=0, vcpus=1, disk_available_least=1000,
-                free_disk_mb=1000, free_ram_mb=1000, vcpus_used=0))
-        self.assertEquals(1000 - 128, fn(hostinfo, {}))
+                free_disk_mb=1000, free_ram_mb=872, vcpus_used=0,
+                local_gb_used=0))
+        self.assertEquals(872, fn(hostinfo, {}))
 
     def test_max_attempts(self):
         self.flags(scheduler_max_attempts=4)
diff --git a/nova/tests/scheduler/test_host_filters.py b/nova/tests/scheduler/test_host_filters.py
index 19b008212e78..42d43a197f99 100644
--- a/nova/tests/scheduler/test_host_filters.py
+++ b/nova/tests/scheduler/test_host_filters.py
@@ -514,6 +514,18 @@ class HostFiltersTestCase(test.TestCase):
                  'capabilities': capabilities, 'service': service})
         self.assertFalse(filt_cls.host_passes(host, filter_properties))
 
+    def test_ram_filter_passes(self):
+        self._stub_service_is_up(True)
+        filt_cls = self.class_map['RamFilter']()
+        self.flags(ram_allocation_ratio=1.0)
+        filter_properties = {'instance_type': {'memory_mb': 1024}}
+        capabilities = {'enabled': True}
+        service = {'disabled': False}
+        host = fakes.FakeHostState('host1', 'compute',
+                {'free_ram_mb': 1024, 'total_usable_ram_mb': 1024,
+                 'capabilities': capabilities, 'service': service})
+        self.assertTrue(filt_cls.host_passes(host, filter_properties))
+
     def test_ram_filter_oversubscribe(self):
         self._stub_service_is_up(True)
         filt_cls = self.class_map['RamFilter']()
@@ -525,24 +537,62 @@ class HostFiltersTestCase(test.TestCase):
                 {'free_ram_mb': -1024, 'total_usable_ram_mb': 2048,
                  'capabilities': capabilities, 'service': service})
         self.assertTrue(filt_cls.host_passes(host, filter_properties))
+        self.assertEqual(2048 * 2.0, host.limits['memory_mb'])
 
-    def test_ram_filter_sets_memory_limit(self):
-        """Test that ram filter sets a filter_property denoting the memory
-        ceiling.
-        """
+    def test_disk_filter_passes(self):
         self._stub_service_is_up(True)
-        filt_cls = self.class_map['RamFilter']()
-        self.flags(ram_allocation_ratio=2.0)
-        filter_properties = {'instance_type': {'memory_mb': 1024}}
+        filt_cls = self.class_map['DiskFilter']()
+        self.flags(disk_allocation_ratio=1.0)
+        filter_properties = {'instance_type': {'root_gb': 1,
+                                               'ephemeral_gb': 1}}
         capabilities = {'enabled': True}
         service = {'disabled': False}
         host = fakes.FakeHostState('host1', 'compute',
-                {'free_ram_mb': -1024, 'total_usable_ram_mb': 2048,
+                {'free_disk_mb': 11 * 1024, 'total_usable_disk_gb': 13,
                  'capabilities': capabilities, 'service': service})
-        filt_cls.host_passes(host, filter_properties)
+        self.assertTrue(filt_cls.host_passes(host, filter_properties))
 
-        self.assertEqual(host.total_usable_ram_mb * 2.0,
-                filter_properties['memory_mb_limit'])
+    def test_disk_filter_fails(self):
+        self._stub_service_is_up(True)
+        filt_cls = self.class_map['DiskFilter']()
+        self.flags(disk_allocation_ratio=1.0)
+        filter_properties = {'instance_type': {'root_gb': 2,
+                                               'ephemeral_gb': 1}}
+        capabilities = {'enabled': True}
+        service = {'disabled': False}
+        host = fakes.FakeHostState('host1', 'compute',
+                {'free_disk_mb': 11 * 1024, 'total_usable_disk_gb': 13,
+                 'capabilities': capabilities, 'service': service})
+        self.assertTrue(filt_cls.host_passes(host, filter_properties))
+
+    def test_disk_filter_oversubscribe(self):
+        self._stub_service_is_up(True)
+        filt_cls = self.class_map['DiskFilter']()
+        self.flags(disk_allocation_ratio=10.0)
+        filter_properties = {'instance_type': {'root_gb': 100,
+                                               'ephemeral_gb': 19}}
+        capabilities = {'enabled': True}
+        service = {'disabled': False}
+        # 1GB used... so 119GB allowed...
+        host = fakes.FakeHostState('host1', 'compute',
+                {'free_disk_mb': 11 * 1024, 'total_usable_disk_gb': 12,
+                 'capabilities': capabilities, 'service': service})
+        self.assertTrue(filt_cls.host_passes(host, filter_properties))
+        self.assertEqual(12 * 10.0, host.limits['disk_gb'])
+
+    def test_disk_filter_oversubscribe_fail(self):
+        self._stub_service_is_up(True)
+        filt_cls = self.class_map['DiskFilter']()
+        self.flags(disk_allocation_ratio=10.0)
+        filter_properties = {'instance_type': {'root_gb': 100,
+                                               'ephemeral_gb': 20}}
+        capabilities = {'enabled': True}
+        service = {'disabled': False}
+        # 1GB used... so 119GB allowed...
+        host = fakes.FakeHostState('host1', 'compute',
+                {'free_disk_mb': 11 * 1024, 'total_usable_disk_gb': 12,
+                 'capabilities': capabilities, 'service': service})
+        self.assertFalse(filt_cls.host_passes(host, filter_properties))
 
     def test_compute_filter_fails_on_service_disabled(self):
         self._stub_service_is_up(True)
diff --git a/nova/tests/scheduler/test_host_manager.py b/nova/tests/scheduler/test_host_manager.py
index a2f9fc425ec8..2ca8f3ad9cd9 100644
--- a/nova/tests/scheduler/test_host_manager.py
+++ b/nova/tests/scheduler/test_host_manager.py
@@ -122,8 +122,6 @@ class HostManagerTestCase(test.TestCase):
         self.assertDictMatch(service_states, expected)
 
     def test_get_all_host_states(self):
-        self.flags(reserved_host_memory_mb=512,
-                reserved_host_disk_mb=1024)
 
         context = 'fake_context'
         topic = 'compute'
@@ -145,18 +143,18 @@ class HostManagerTestCase(test.TestCase):
             host = compute_node['service']['host']
             self.assertEqual(host_states[host].service,
                     compute_node['service'])
-        self.assertEqual(host_states['host1'].free_ram_mb, 0)
+        self.assertEqual(host_states['host1'].free_ram_mb, 512)
         # 511GB
-        self.assertEqual(host_states['host1'].free_disk_mb, 523264)
-        self.assertEqual(host_states['host2'].free_ram_mb, 512)
+        self.assertEqual(host_states['host1'].free_disk_mb, 524288)
+        self.assertEqual(host_states['host2'].free_ram_mb, 1024)
         # 1023GB
-        self.assertEqual(host_states['host2'].free_disk_mb, 1047552)
-        self.assertEqual(host_states['host3'].free_ram_mb, 2560)
+        self.assertEqual(host_states['host2'].free_disk_mb, 1048576)
+        self.assertEqual(host_states['host3'].free_ram_mb, 3072)
         # 3071GB
-        self.assertEqual(host_states['host3'].free_disk_mb, 3144704)
-        self.assertEqual(host_states['host4'].free_ram_mb, 7680)
+        self.assertEqual(host_states['host3'].free_disk_mb, 3145728)
+        self.assertEqual(host_states['host4'].free_ram_mb, 8192)
         # 8191GB
-        self.assertEqual(host_states['host4'].free_disk_mb, 8387584)
+        self.assertEqual(host_states['host4'].free_disk_mb, 8388608)
 
 
 class HostStateTestCase(test.TestCase):
diff --git a/nova/virt/fake.py b/nova/virt/fake.py
index 48ee67d5b61b..a6476f9d9a5a 100644
--- a/nova/virt/fake.py
+++ b/nova/virt/fake.py
@@ -231,7 +231,7 @@ class FakeDriver(driver.ComputeDriver):
         """
 
         dic = {'vcpus': 1,
-               'memory_mb': 4096,
+               'memory_mb': 8192,
                'local_gb': 1028,
                'vcpus_used': 0,
                'memory_mb_used': 0,