In this article, we discuss and empirically examine the importance of embodiment, context, and spatial proximity as they pertain to collaborative interaction and task completion in virtual environments. Specifically, we introduce the embodied social presence (ESP) theory as a framework to account for a higher level of perceptual engagement that users experience as they engage in activity-based social interaction in virtual environments. The ESP theory builds on the analysis of reflection data from Second Life users to explain the process by which perceptions of ESP are realized. We proceed to describe implications of ESP for collaboration and other organizational functions.