Spatial navigation deficits in older adults are well documented. These findings are often based on experimental paradigms that require using a joystick or keyboard to navigate a virtual desktop environment. In the present study, we investigated whether age differences in spatial memory are attenuated when tested in a more naturalistic and ambulatory virtual environment. In Experiment 1, cognitively normal young and older adults navigated a virtual variant of the Morris Water Maze task in each of two virtual reality (VR) conditions: a desktop VR condition which required using a mouse and keyboard to navigate and an immersive and ambulatory VR condition which permitted unrestricted locomotion. In Experiment 2, we examined whether age- and VR-related differences in spatial performance were affected by the inclusion of additional spatial cues in an independent sample of young and older adults. In both experiments, older adults navigated to target locations less precisely than did younger individuals in the desktop condition, replicating numerous prior studies. These age differences were significantly attenuated, however, when tested in the fully immersive and ambulatory environment. These findings underscore the importance of developing naturalistic and ecologically valid measures of spatial memory and navigation, especially when performing cross-sectional studies of cognitive aging.