This paper details the design, development, and testing of virtual augmented exercise (VAE) gaming for older adults. Three versions of an underwater VAE environment were tested with a sample of 22 healthy adults aged 50 or over. Participants strongly preferred VAE to traditional physical exercise, and adherence rate was 100%. The findings suggest that VAE with puzzles changes or negates the expected negative associations among exercise outcomes. Fitness level was not associated with performance in the game, irrespective of VAE type, indicating that persons who are less physically fit can expect to perform similarly to those who are more physically fit. In conclusion, the research found some evidence for the benefits of VAE with cognitive exercise (solving simple puzzles and hitting targets based on the answer). This type of exercise appears to be a promising method of exercise for older adults.