It's possible to setup a small Hadoop cluster on a single machine using virtualization. I blogged about it here a year back without the nitty gritty details, but Cloudera published a blog here with much more details.
Here is an alternate way of setting a bigger cluster on a single machine using Linux containers. This solution only works for Linux as the host OS and is less burden on the host OS, but the Cloudera mentioned approach works on multiple host OS. I haven't given the Linux containers options a try, but seems very interesting.
The same concept can be extended for non Hadoop frameworks also.
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