Selected by NASA for an Astrophysics Science SmallSat study, The Virtual Telescope for X-Ray Observations (VTXO) is a small satellite mission being developed by NASAs Goddard Space Flight Center (GSFC) and New Mexico State University (NMSU). VTXO will perform X-ray observations with an angular resolution around 50 milliarcseconds, an order of magnitude better than is achievable by current state of the art X-ray telescopes. VTXOs fine angular resolution enables measuring the environments closer to the central engines in compact X-ray sources. This resolution will be achieved by the use of Phased Fresnel Lenses (PFLs) optics which provide near diffraction-limited imaging in the X-ray band. However, PFLs require long focal lengths in order to realize their imaging performance, for VTXO this dictates that the telescopes optics and the camera will have a separation of 1 km. As it is not realistic to build a structure this large in space, the solution being adapted for VTXO is to place the camera, and the optics on two separate spacecraft and fly them in formation with the necessary spacing. This requires centimeter level control, and sub-millimeter level knowledge of the two spacecrafts relative transverse position. This paper will present VTXOs current baseline, with particular emphasis on the missions flight dynamics design.