Although infrastructure as a service (IaaS) users are busy scaling up/out their cloud instances to meet the ever-increasing demands, the dynamics of their demands, as well as the coarse-grained billing options offered by leading cloud providers, have led to substantial instance underutilization in both temporal and spatial domains. This paper systematically examines an instance subletting service, where sublettable instances can be leased to others within predetermined periods when underutilized, from both theoretical and practical perspectives. The studied instance subletting service extends and complements the existing instance market of IaaS providers. We identify the unique challenges and opportunities in this new service, and design online auction mechanisms to make allocation and pricing decisions for the instances to be sublet. For static supplies of instances, our mechanism guarantees truthfulness and individual rationality with the best possible competitive ratio. We then incorporate a multi-stage discount strategy to gracefully handle dynamic supplies. Extensive trace-driven simulations show that our service achieves significant performance gains in both cost savings and social welfare. We further pinpoint the challenges in implementing such a service in the real-world system and validate our modeling assumptions through a container-based prototype implemented over Amazon EC2.