Abstract-- Many peer-to-peer-based virtual environment (P2PVE) solutions have been proposed recently to improve the scalability of distributed virtual environment (VE) systems. By organizing peers to realize neighbor discovery through mutual peer collaboration, P2P-VEs allow systems to scale without additional server provision. Related services such as the real-time delivery of 3D content (i.e., 3D streaming) can also be supported with P2P approaches. However, the selection of peer connections based purely on logical neighbors in the virtual world may cause serious latencies. Accordingly, we propose Discovery of Physical Neighbor (DPN) that groups peers with physical proximity together to reduce the latencies among peer communications. The maintenance of DPN is distributed among the peers via cooperation. We also evaluate our approach on P2P-based 3D streaming via simulations to verify DPN's effectiveness Keywords-networked virtual environment, peer-to-peer network, 3D streaming, ...