Setting up an OS to work with xhyve can be a bit tricky, but it's not impossible. These intructions should be generally applicable to most versions of Linux.
Create a disk image file
Xhyve will use a file as a logical disk. Be sure you have the filesize you need, because growing the file later is tricky to impossible (you could try to use
qcow or similar to get around this, but qcow volumes can be tricky to mount).
dd if=/dev/zero of=hdd.img bs=1g count=32 # Create a 32 gig disk. Raise 'count' as desired