The emerging technology of virtual reality (VR) used in motor rehabilitation might bring in challenges to elderly users' locomotion safety. The objective of this study was to investigate such effects of virtual environment (VE) exposure to the dynamic stability of lower extremities by using a head mounted display (HMD). Twelve healthy elderly were randomly assigned with real world or VR walking conditions. Maximum Lyapunov exponents (maxLE), which served as a general measurement of dynamic stability, were assessed for real world walking, VR walking in the initial phase and VR walking in the habituated phase. Significant degradation of stability at the initial phase and remarkable recovery of stability after VE habituation were found at five lower extremity landmarks out of six, suggesting potential problems for the elderly to accept VR based interventions and the importance of habituation to a new perturbation. Meanwhile, across all walking conditions, dynamic stability was found to be increased from ankles up to hip joints. And a novel method for computing maxLE appeared to be reasonable and feasible for analyzing treadmill walking trials which were relatively short.