In Body Integrity Dysphoria (BID) a profound incongruity between the physical body and the desired, i.e., amputated body, often leads to a desire for limb amputation. Virtual reality (VR) and multisensory stimulation paradigms provide powerful tools to create the experience of being embodied in an amputated body. Here we investigate the impact of such an experience on neural and subjective responses in 18 individuals with BID and 18 controls. We used both task-based and resting-state MRI before and after participants played an immersive virtual game in an amputated body corresponding to their desired bodily shape and mimicking their movements. The task-based fMRI assessed neural activity when viewing images of the body in the desired versus the undesired state. Individuals with BID reported higher sense of ownership and control over the virtual body. Task-based fMRI showed increased pre-VR activity in the right superior parietal lobule (rSPL), right angular gyrus, and right supplementary motor area in the BID group, normalizing after VR exposure. Resting-state fMRI showed reduced connectivity in the rSPL, visuo-occipital areas, fronto-parietal, and fronto-striatal mirror and limb system networks, also normalizing post-VR. Additionally, there was a normalization in the pattern of increased connectivity of cortico-striatal tracts connecting the rSPL and the pars orbitalis of the right inferior frontal gyrus with the nucleus accumbens. Our findings suggest that virtual embodiment effectively modulates BID-related neural networks, offering a safe, cost-effective intervention for BID and highlights VR's potential in exploring the complex interaction between body and self, with potential implications for similar psychiatric conditions.