An example method for implementation of virtual extensible local area network (VXLAN) in top-of-rack (ToR) switches in a network environment is provided and includes receiving a packet encapsulated with a VXLAN header having an unknown virtual tunnel endpoint (VTEP) Internet Protocol (IP) address in a network environment, and installing an entry at an index location of a forwarding table. The index location includes an encoding of the VTEP-IP address as a VTEP index (VTEP-IDX), and the entry maps a VXLAN interface to an IP address associated with a VXLAN network identifier (VNI). In specific embodiments, the VTEP-IDX is log N bits, where N is a size of the forwarding table. The forwarding table indicates a destination VTEP IP address when encapsulating the packet, and the source VTEP IP address when decapsulating the packet.