How to encrypt virtual disks on a Windows VM

For enhanced virtual machine (VM) security and compliance, virtual disks in Azure can be encrypted. Disks are encrypted using cryptographic keys that are secured in an Azure Key Vault. You control these cryptographic keys and can audit their use. This article details how to encrypt virtual disks on a Windows VM using Azure PowerShell. You can also encrypt a Linux VM using the Azure CLI 2.0.

Overview of disk encryption

Virtual disks on Windows VMs are encrypted at rest using Bitlocker. There is no charge for encrypting virtual disks in Azure. Cryptographic keys are stored in Azure Key Vault using software-protection, or you can import or generate your keys in Hardware Security Modules (HSMs) certified to FIPS 140-2 level 2 standards. These cryptographic keys are used to encrypt and decrypt virtual disks attached to your VM. You retain control of these cryptographic keys and can audit their use. An Azure Active Directory service principal provides a secure mechanism for issuing these cryptographic keys as VMs are powered on and off.

The process for encrypting a VM is as follows:

  1. Create a cryptographic key in an Azure Key Vault.
  2. Configure the cryptographic key to be usable for encrypting disks.
  3. To read the cryptographic key from the Azure Key Vault, create an Azure Active Directory service principal with the appropriate permissions.
  4. Issue the command to encrypt your virtual disks, specifying the Azure Active Directory service principal and appropriate cryptographic key to be used.
  5. The Azure Active Directory service principal requests the required cryptographic key from Azure Key Vault.
  6. The virtual disks are encrypted using the provided cryptographic key.

Encryption process

Disk encryption relies on the following additional components:

  • Azure Key Vault - used to safeguard cryptographic keys and secrets used for the disk encryption/decryption process.
    • If one exists, you can use an existing Azure Key Vault. You do not have to dedicate a Key Vault to encrypting disks.
    • To separate administrative boundaries and key visibility, you can create a dedicated Key Vault.
  • Azure Active Directory - handles the secure exchanging of required cryptographic keys and authentication for requested actions.
    • You can typically use an existing Azure Active Directory instance for housing your application.
    • The service principal provides a secure mechanism to request and be issued the appropriate cryptographic keys. You are not developing an actual application that integrates with Azure Active Directory.

Requirements and limitations

Supported scenarios and requirements for disk encryption:

  • Enabling encryption on new Windows VMs from Azure Marketplace images or custom VHD image.
  • Enabling encryption on existing Windows VMs in Azure.
  • Enabling encryption on Windows VMs that are configured using Storage Spaces.
  • Disabling encryption on OS and data drives for Windows VMs.
  • All resources (such as Key Vault, Storage account, and VM) must be in the same Azure region and subscription.
  • Standard tier VMs, such as A, D, DS, G, and GS series VMs.

Disk encryption is not currently supported in the following scenarios:

  • Basic tier VMs.
  • VMs created using the Classic deployment model.
  • Updating the cryptographic keys on an already encrypted VM.
  • Integration with on-prem Key Management Service.

Create Azure Key Vault and keys

Before you start, make sure that the latest version of the Azure PowerShell module has been installed. For more information, see How to install and configure Azure PowerShell. Throughout the command examples, replace all example parameters with your own names, location, and key values. The following examples use a convention of myResourceGroup, myKeyVault, myVM, etc.

The first step is to create an Azure Key Vault to store your cryptographic keys. Azure Key Vault can store keys, secrets, or passwords that allow you to securely implement them in your applications and services. For virtual disk encryption, you create a Key Vault to store a cryptographic key that is used to encrypt or decrypt your virtual disks.

Enable the Azure Key Vault provider within your Azure subscription with Register-AzureRmResourceProvider, then create a resource group with New-AzureRmResourceGroup. The following example creates a resource group name myResourceGroup in the East US location:

$rgName = "myResourceGroup"
$location = "East US"

Register-AzureRmResourceProvider -ProviderNamespace "Microsoft.KeyVault"
New-AzureRmResourceGroup -Location $location -Name $rgName

The Azure Key Vault containing the cryptographic keys and associated compute resources such as storage and the VM itself must reside in the same region. Create an Azure Key Vault with New-AzureRmKeyVault and enable the Key Vault for use with disk encryption. Specify a unique Key Vault name for keyVaultName as follows:

$keyVaultName = "myUniqueKeyVaultName"
New-AzureRmKeyVault -Location $location `
    -ResourceGroupName $rgName `
    -VaultName $keyVaultName `

You can store cryptographic keys using software or Hardware Security Model (HSM) protection. Using an HSM requires a premium Key Vault. There is an additional cost to creating a premium Key Vault rather than standard Key Vault that stores software-protected keys. To create a premium Key Vault, in the preceding step add the -Sku "Premium" parameters. The following example uses software-protected keys since we created a standard Key Vault.

For both protection models, the Azure platform needs to be granted access to request the cryptographic keys when the VM boots to decrypt the virtual disks. Create a cryptographic key in your Key Vault with Add-AzureKeyVaultKey. The following example creates a key named myKey:

Add-AzureKeyVaultKey -VaultName $keyVaultName `
    -Name "myKey" `
    -Destination "Software"

Create the Azure Active Directory service principal

When virtual disks are encrypted or decrypted, you specify an account to handle the authentication and exchanging of cryptographic keys from Key Vault. This account, an Azure Active Directory service principal, allows the Azure platform to request the appropriate cryptographic keys on behalf of the VM. A default Azure Active Directory instance is available in your subscription, though many organizations have dedicated Azure Active Directory directories.

Create a service principal in Azure Active Directory with New-AzureRmADServicePrincipal. To specify a secure password, follow the Password policies and restrictions in Azure Active Directory:

$appName = "My App"
$securePassword = ConvertTo-SecureString -String "P@ssw0rd!" -AsPlainText -Force
$app = New-AzureRmADApplication -DisplayName $appName `
    -HomePage "" `
    -IdentifierUris "" `
    -Password $securePassword
New-AzureRmADServicePrincipal -ApplicationId $app.ApplicationId

To successfully encrypt or decrypt virtual disks, permissions on the cryptographic key stored in Key Vault must be set to permit the Azure Active Directory service principal to read the keys. Set permissions on your Key Vault with Set-AzureRmKeyVaultAccessPolicy:

Set-AzureRmKeyVaultAccessPolicy -VaultName $keyvaultName `
    -ServicePrincipalName $app.ApplicationId `
    -PermissionsToKeys "WrapKey" `
    -PermissionsToSecrets "Set"

Create virtual machine

To test the encryption process, create a VM with New-AzureRmVm. The following example creates a VM named myVM using a Windows Server 2016 Datacenter image. When prompted for credentials, enter the username and password to be used for your VM:

$cred = Get-Credential

New-AzureRmVm `
    -ResourceGroupName $rgName `
    -Name "myVM" `
    -Location $location `
    -VirtualNetworkName "myVnet" `
    -SubnetName "mySubnet" `
    -SecurityGroupName "myNetworkSecurityGroup" `
    -PublicIpAddressName "myPublicIpAddress" `
    -Credential $cred

Encrypt virtual machine

To encrypt the virtual disks, you bring together all the previous components:

  1. Specify the Azure Active Directory service principal and password.
  2. Specify the Key Vault to store the metadata for your encrypted disks.
  3. Specify the cryptographic keys to use for the actual encryption and decryption.
  4. Specify whether you want to encrypt the OS disk, the data disks, or all.

Encrypt your VM with Set-AzureRmVMDiskEncryptionExtension using the Azure Key Vault key and Azure Active Directory service principal credentials. The following example retrieves all the key information then encrypts the VM named myVM:

$keyVault = Get-AzureRmKeyVault -VaultName $keyVaultName -ResourceGroupName $rgName;
$diskEncryptionKeyVaultUrl = $keyVault.VaultUri;
$keyVaultResourceId = $keyVault.ResourceId;
$keyEncryptionKeyUrl = (Get-AzureKeyVaultKey -VaultName $keyVaultName -Name myKey).Key.kid;

Set-AzureRmVMDiskEncryptionExtension -ResourceGroupName $rgName `
    -VMName "myVM" `
    -AadClientID $app.ApplicationId `
    -AadClientSecret (New-Object PSCredential "user",$securePassword).GetNetworkCredential().Password `
    -DiskEncryptionKeyVaultUrl $diskEncryptionKeyVaultUrl `
    -DiskEncryptionKeyVaultId $keyVaultResourceId `
    -KeyEncryptionKeyUrl $keyEncryptionKeyUrl `
    -KeyEncryptionKeyVaultId $keyVaultResourceId

Accept the prompt to continue with the VM encryption. The VM restarts during the process. Once the encryption process completes and the VM has rebooted, review the encryption status with Get-AzureRmVmDiskEncryptionStatus:

Get-AzureRmVmDiskEncryptionStatus  -ResourceGroupName $rgName -VMName "myVM"

The output is similar to the following example:

OsVolumeEncrypted          : Encrypted
DataVolumesEncrypted       : Encrypted
OsVolumeEncryptionSettings : Microsoft.Azure.Management.Compute.Models.DiskEncryptionSettings
ProgressMessage            : OsVolume: Encrypted, DataVolumes: Encrypted

Next steps