diff --git a/services/surfaceflinger/SurfaceFlinger.cpp b/services/surfaceflinger/SurfaceFlinger.cpp
index 9cd2314..0029bfc 100644
--- a/services/surfaceflinger/SurfaceFlinger.cpp
+++ b/services/surfaceflinger/SurfaceFlinger.cpp
@@ -4075,6 +4075,10 @@
         incRefreshableDisplays();
     }
 
+    if (FlagManager::getInstance().correct_virtual_display_power_state()) {
+        applyOptimizationPolicy(__func__);
+    }
+
     mDisplays.try_emplace(displayToken, std::move(display));
 
     // For an external display, loadDisplayModes already attempted to select the same mode
@@ -4131,6 +4135,10 @@
             // not be accessible.
         }));
     }
+
+    if (FlagManager::getInstance().correct_virtual_display_power_state()) {
+        applyOptimizationPolicy(__func__);
+    }
 }
 
 void SurfaceFlinger::processDisplayChanged(const wp<IBinder>& displayToken,
@@ -5680,7 +5688,7 @@
     }
 
     const auto displayId = display->getPhysicalId();
-    ALOGD("Setting power mode %d on display %s", mode, to_string(displayId).c_str());
+    ALOGD("Setting power mode %d on physical display %s", mode, to_string(displayId).c_str());
 
     const auto currentMode = display->getPowerMode();
     if (currentMode == mode) {
@@ -5723,11 +5731,11 @@
         }
 
         if (displayId == mActiveDisplayId) {
-            // TODO: b/281692563 - Merge the syscalls. For now, keep uclamp in a separate syscall
-            // and set it before SCHED_FIFO due to b/190237315.
-            constexpr const char* kWhence = "setPowerMode(ON)";
-            setSchedAttr(true, kWhence);
-            setSchedFifo(true, kWhence);
+            if (FlagManager::getInstance().correct_virtual_display_power_state()) {
+                applyOptimizationPolicy("setPhysicalDisplayPowerMode(ON)");
+            } else {
+                disablePowerOptimizations("setPhysicalDisplayPowerMode(ON)");
+            }
         }
 
         getHwComposer().setPowerMode(displayId, mode);
@@ -5754,9 +5762,11 @@
             if (const auto display = getActivatableDisplay()) {
                 onActiveDisplayChangedLocked(activeDisplay.get(), *display);
             } else {
-                constexpr const char* kWhence = "setPowerMode(OFF)";
-                setSchedFifo(false, kWhence);
-                setSchedAttr(false, kWhence);
+                if (FlagManager::getInstance().correct_virtual_display_power_state()) {
+                    applyOptimizationPolicy("setPhysicalDisplayPowerMode(OFF)");
+                } else {
+                    enablePowerOptimizations("setPhysicalDisplayPowerMode(OFF)");
+                }
 
                 if (currentModeNotDozeSuspend) {
                     if (!FlagManager::getInstance().multithreaded_present()) {
@@ -5817,7 +5827,67 @@
 
     mScheduler->setDisplayPowerMode(displayId, mode);
 
-    ALOGD("Finished setting power mode %d on display %s", mode, to_string(displayId).c_str());
+    ALOGD("Finished setting power mode %d on physical display %s", mode,
+          to_string(displayId).c_str());
+}
+
+void SurfaceFlinger::setVirtualDisplayPowerMode(const sp<DisplayDevice>& display,
+                                                hal::PowerMode mode) {
+    if (!display->isVirtual()) {
+        ALOGE("%s: Invalid operation on physical display", __func__);
+        return;
+    }
+
+    const auto displayId = display->getVirtualId();
+    ALOGD("Setting power mode %d on virtual display %s %s", mode, to_string(displayId).c_str(),
+          display->getDisplayName().c_str());
+
+    display->setPowerMode(static_cast<hal::PowerMode>(mode));
+
+    applyOptimizationPolicy(__func__);
+
+    ALOGD("Finished setting power mode %d on virtual display %s", mode,
+          to_string(displayId).c_str());
+}
+
+bool SurfaceFlinger::shouldOptimizeForPerformance() {
+    for (const auto& [_, display] : mDisplays) {
+        // Displays that are optimized for power are always powered on and should not influence
+        // whether there is an active display for the purpose of power optimization, etc. If these
+        // displays are being shown somewhere, a different (physical or virtual) display that is
+        // optimized for performance will be powered on in addition. Displays optimized for
+        // performance will change power mode, so if they are off then they are not active.
+        if (display->isPoweredOn() &&
+            display->getOptimizationPolicy() ==
+                    gui::ISurfaceComposer::OptimizationPolicy::optimizeForPerformance) {
+            return true;
+        }
+    }
+    return false;
+}
+
+void SurfaceFlinger::enablePowerOptimizations(const char* whence) {
+    ALOGD("%s: Enabling power optimizations", whence);
+
+    setSchedAttr(false, whence);
+    setSchedFifo(false, whence);
+}
+
+void SurfaceFlinger::disablePowerOptimizations(const char* whence) {
+    ALOGD("%s: Disabling power optimizations", whence);
+
+    // TODO: b/281692563 - Merge the syscalls. For now, keep uclamp in a separate syscall
+    // and set it before SCHED_FIFO due to b/190237315.
+    setSchedAttr(true, whence);
+    setSchedFifo(true, whence);
+}
+
+void SurfaceFlinger::applyOptimizationPolicy(const char* whence) {
+    if (shouldOptimizeForPerformance()) {
+        disablePowerOptimizations(whence);
+    } else {
+        enablePowerOptimizations(whence);
+    }
 }
 
 void SurfaceFlinger::setPowerMode(const sp<IBinder>& displayToken, int mode) {
@@ -5839,9 +5909,8 @@
             ALOGE("Failed to set power mode %d for display token %p", mode, displayToken.get());
         } else if (display->isVirtual()) {
             if (FlagManager::getInstance().correct_virtual_display_power_state()) {
-                ALOGD("Setting power mode %d on virtual display %s", mode,
-                      display->getDisplayName().c_str());
-                display->setPowerMode(static_cast<hal::PowerMode>(mode));
+                ftl::FakeGuard guard(mStateLock);
+                setVirtualDisplayPowerMode(display, static_cast<hal::PowerMode>(mode));
             } else {
                 ALOGW("Attempt to set power mode %d for virtual display", mode);
             }
diff --git a/services/surfaceflinger/SurfaceFlinger.h b/services/surfaceflinger/SurfaceFlinger.h
index fc596d7..37f362f 100644
--- a/services/surfaceflinger/SurfaceFlinger.h
+++ b/services/surfaceflinger/SurfaceFlinger.h
@@ -735,6 +735,22 @@
     // Called on the main thread in response to setPowerMode()
     void setPhysicalDisplayPowerMode(const sp<DisplayDevice>& display, hal::PowerMode mode)
             REQUIRES(mStateLock, kMainThreadContext);
+    void setVirtualDisplayPowerMode(const sp<DisplayDevice>& display, hal::PowerMode mode)
+            REQUIRES(mStateLock, kMainThreadContext);
+
+    // Returns whether to optimize globally for performance instead of power.
+    bool shouldOptimizeForPerformance() REQUIRES(mStateLock);
+
+    // Turns on power optimizations, for example when there are no displays to be optimized for
+    // performance.
+    static void enablePowerOptimizations(const char* whence);
+
+    // Turns off power optimizations.
+    static void disablePowerOptimizations(const char* whence);
+
+    // Enables or disables power optimizations depending on whether there are displays that should
+    // be optimized for performance.
+    void applyOptimizationPolicy(const char* whence) REQUIRES(mStateLock);
 
     // Returns the preferred mode for PhysicalDisplayId if the Scheduler has selected one for that
     // display. Falls back to the display's defaultModeId otherwise.