This paper presents a data management solution which allows fast Virtual Machine (VM) instantiation and efficient run-time execution to support VMs as execution environments in Grid computing. It is based on novel distributed file system virtualization techniques and is unique in that: I) it provides on-demand access to VM state for unmodified VM monitors; 2) it supports user-level and write-back disk caches, per-application caching policies and middleware-driven consistency models; and 3) it supports the use of meta-data associated with files to expedite data transfers. The paper reports on its performance in a WAN setup using VMware-based VMs. Results show that the solution delivers performance over 30% better than native NFS and can bring application-perceived overheads below 10% relatively to a local disk setup. The solution also allows a VM with 1.6GB virtual disk and 320MB virtual memory to be cloned within 160 seconds when it is first instantiated (and within 25 seconds for subsequent clones).