A method and system for managing peripheral connection wakeup signaling in a processing system supporting multiple virtual machines provides a mechanism by which ownership of a peripheral having system wakeup capability is transferred between virtual machines. The power management event signal is connected to a service processor input that in turn signals a hypervisor to direct the wakeup activity to a particular logical partition in which the virtual machine was last executing. The hypervisor can then determine whether or not to wake up the entire system, or portions thereof and can direct the power management event to the appropriate virtual machine. In particular the peripheral may be an Ethernet adapter supporting Wake-On-LAN capability. State initialization, which is typically ensured by system power cycling is provided instead by controlling power to the standby power source or in some instances by forcing an indication of a disconnect/reconnect of the wakeup signaling connection.