Immersive virtual reality (IVR) has been investigated as a tool for treating psychiatric conditions. In particular, the practical nature of IVR, by offering a doing instead of talking approach, could support people who do not benefit from existing treatments. Hence, people with mild to borderline intellectual disability (MBID; IQ=50-85) might profit particularly from IVR therapies, for instance, to circumvent issues in understanding relevant concepts and interrelations. In this context, immersing the user into a virtual body (ie, avatar) appears promising for enhancing learning (eg, by changing perspectives) and usability (eg, natural interactions). However, design requirements, immersion procedures, and proof of concept of such embodiment illusion (ie, substituting the real body with a virtual one) have not been explored in this group. Our study aimed to establish design guidelines for IVR embodiment illusions in people with MBID. We explored 3 factors to induce the illusion, by testing the avatar's appearance, locomotion using IVR controllers, and virtual object manipulation. Furthermore, we report on the feasibility to induce the embodiment illusion and provide procedural guidance. We conducted a user-centered study with 29 end users in care facilities, to investigate the avatar's appearance, controller-based locomotion (ie, teleport, joystick, or hybrid), and object manipulation. Overall, 3 iterations were conducted using semistructured interviews to explore design factors to induce embodiment illusions in our group. To further understand the influence of interactions on the illusion, we measured the sense of embodiment (SoE) during 5 interaction tasks. IVR embodiment illusions can be induced in adults with MBID. To induce the illusion, having a high degree of control over the body outweighed avatar customization, despite the participants' desire to replicate their own body image. Similarly, the highest SoE was measured during object manipulation tasks, which required a combination of (virtual) locomotion and object manipulation behavior. Notably, interactions that are implausible (eg, teleport and occlusions when grabbing) showed a negative influence on SoE. In contrast, implementing artificial interaction aids into the IVR avatar's hands (ie, for user interfaces) did not diminish the illusion, presuming that the control was unimpaired. Nonetheless, embodiment illusions showed a tedious and complex need for (control) habituation (eg, motion sickness), possibly hindering uptake in practice. Balancing the embodiment immersion by focusing on interaction habituation (eg, controller-based locomotion) and lowering customization effort seems crucial to achieve both high SoE and usability for people with MBID. Hence, future studies should investigate the requirements for natural IVR avatar interactions by using multisensory integrations for the virtual body (eg, animations, physics-based collision, and touch) and other interaction techniques (eg, hand tracking and redirected walking). In addition, procedures and use for learning should be explored for tailored mental health therapies in people with MBID.