As the role of virtualization technology becomes more prevalent, the range of applications deployed in virtualized systems is steadily growing. This increasingly includes applications with soft real-time requirements that benefit from low and predictable latency, even when co-located with other virtualized hosts with arbitrary traffic patterns. In this paper, we examine the policies and mechanisms affecting communication latency between virtual machines based on the Xen platform, and identify limitations that can result in long or unpredictable network stack latency for virtual machines deployed on this platform. To address these limitations, we propose and implement VATC, a Virtualization-Aware Traffic Control framework that supports differentiation (via rate-limited prioritization) of outbound and inbound network traffic from co-located virtualized hosts. Results of our experiments show how and why VATC can offer predictable (soft) latency guarantees to applications running on virtualized hosts with minimum overhead.