A virtual factory is a system of software models and applications that operates a physical factory. Virtual factories enable fast-paced development and deployment of new manufacturing technologies, and enable the integration of manufacturing systems with enterprise-wide business functions. These benefits help companies to gain competitive advantage with much higher agility and responsiveness in the markets they participate in. This paper examines the principles of virtual factories developed in the semiconductor industry, and argues that they apply to a wide range of manufacturing industries. Economic benefits and technical challenges make this area a major driving force for several research fields: Representation and reasoning for engineered environments; distributed, concurrent systems; multi-media and mobile interfaces; software frameworks; and world-wide distributed, heterogenous, multi-vendor communication systems.