1. Right-click on My Computer and select to Manage.
2. The Computer Management screen opens click on Disk Management then Action and Create VHD.
3. Browse to the directory you want the disk to reside, choose the size you want it to be, and select dynamic or a fixed. If you want the disk to expand in size as you add files to it, then pick Dynamically expanding. Check Fixed size if you want a specific size and for it to stay that way.
4. In Disk Management you will see the virtual drive listed as unallocated space.
5. Right-click and select Initialize Disk.
6. In the initialize disk box just keep MBR selected and hit OK.
7. Create a volume by Right-clicking the unallocated space and select New Simple Volume.
8. The New Simple Volume Wizard starts up.
9. Choose the amount of space you want to use for the volume.
10. Assign it a dive letter that is not currently being used.
11. Format the new volume as NTFS, FAT32, or FAT. Check if you want a quick format and file compression.
12. Click Finish.
13. It will be listed with the other disks in Disk Management as well as My Computer.

To DELETE:

1. Go into Computer Management by right-clicking Computer then Manage.
2. In Computer Management go under Disk Management, right-click on the VHD you want to get rid of and select Delete Volume.
3. Agree to the warning message that appears. You probably want to make sure and head its advice and make sure there is no data you need on it.