Directing network packets based on the layer 3 address of their destination. In IP networks, the IP address is the layer 3 address.

This means that IP routing is a form of layer 3 switching; but the simple hardware alluded to by the jargon use of "layer 3 switching" is meant to replace the slower software processing used by common routers. The speed enhancement will be essential to replacing existing 100-mbit routing systems with multi-gigabit systems, which will become critical for ISPs when the last mile starts to go to 100-mbit or gigabit speeds. It can also allow further concentration of the existing network, which reduces overall costs.

Like routers, layer 3 switches may also apply QoS to the packets, prioritizing traffic according to the parameters of its account and the state of the network.