The paper addresses the development of a virtual physical therapy lab in an immersive CAVE system (Visbox, Inc., IL) to simulate a balance perturbation experiment in a Physical Therapy (PT) setting. The primary goal is to determine if virtual reality (VR) can be effectively used for rehabilitative assessment and training instead of a physical setup. The Balance Perturbation Setup (BPS) includes a seven-and-a-half-foot apparatus with an adjustable-height pendulum and pads attached to its structure for making physical contact with a participant. This pendulum is reconfigurable and can be adjusted to the participant’s height and shoulder width. The released pendulum perturbs the participant’s upper torso at the shoulder level disturbing the upright stability of the participant. The virtual environment developed in this study utilizes Unity 3D and Blender software to recreate the BPS and the environment of the PT lab in the CAVE VR system integrated with a full body motion capture. A haptic vest equipped with tactors is developed to simulate the tactile feedback when the pendulum makes contact with the participant’s upper torso. This virtual lab for balance assessment is expected to be evaluated in a user study for its effectiveness as compared to the physical BPS setup using appropriate kinematic measures and sensors. The virtual lab has the potential to provide an alternate, highly reconfigurable method for physical therapy evaluations leading to rapid development of strategies for individualized care.