In order to realize the optimal scientific return from the VLT, ESO has undertaken to develop an end-to-end data flow system fi-om proposal entry to science archive. The VLT Data Flow System (DFS) is being designed and implemented by the ESO Data Management and Operations Division in collaboration with VLT and Instrumentation Divisions. Tests of the DFS started in October 1996 on ESO's New Technology Telescope. Since then, prototypes of the Phase 2 Proposal Entry System, VLT Control System Interface,Data Pipelines, Online Data Archive, Data Quality Control and Science Archive System have been tested. Several major DFS components have been run under operational conditions since February 1997. This paper describes the current status of the VLT DFS, the technological and operational challenges of such a system and the planning for VLT operations beginning in early 1999.