Absolutely possible. There is a lot of software out there to do it. Most notable are probably VMware (either server, workstation, ESX and ESXi), Microsoft Hyper-V and virtual PC, VirtualBox, and Citrix XenServer.
Depending on which you want to go with the setup with be different with them all. I’m personally experience with VMware (all versions mentioned above) and Hyper-V (both as a server add in and as a bare-metal hypervisor). I prefer VMware myself.
The basic principal of a virtual machine is that the whole machine is simply a set of files independent of physical hardware that it is actually running on.