vSphere with Tanzu requires the use of a vSphere 7 Virtual Distributed Switch (VDS) for host transport node traffic. You cannot use the NSX-T VDS (N-VDS) for host transport node traffic with vSphere with Tanzu.

VDS Is Required

vSphere with Tanzu requires a converged VDS that supports both vSphere 7 traffic and NSX-T 3 traffic on the same VDS. With previous releases of vSphere and NSX-T, you have one VDS (or VSS) for vSphere traffic and one N-VDS for NSX-T traffic. This configuration is not supported by vSphere with Tanzu. If you attempt to enable Workload Management using an N-VDS, the system reports that the vCenter cluster is not compatible. For more information, see Troubleshoot Workload Management Enablement Cluster Compatibility Errors.

To use a converged VDS, create a vSphere 7 VDS using vCenter and in NSX-T specify this VDS when preparing the ESXi hosts as transport nodes. Just having VDS-DSwitch on the vCenter side is not sufficient. The VDS-DSwitch 7.0 has to be configured with NSX-T transport node profile as documented in the topic Create a Transport Node Profile and shown below.
Figure 1. VDS Configuration in NSX-T
NSX Configuration settings window showing the options that you configured.

If you have upgraded to vSphere 7 and NSX-T 3 from previous versions, you must uninstall the N-VDS from each ESXi transport node and reconfigure each host with a VDS. Contact VMware Global Support Service for guidance.