Virtual Cellular Manufacturing System is a new type of cellular system that emerged as a promising alternative for designing cells in real time. The problem is complex and time consuming NP-hard problem in its nature. This study was conducted to design virtual cells that maximizes similarity index and minimizes lead time. A mathematical model and an effective solution procedure were proposed. Several randomly generated data sets were used along a case study to test the performance of the proposed approach. The effects of inherent parameters of virtual systems were investigated and compared by using particular performance measures.