Picture an elegant dinner party at a luxurious estate. The host pours wine, and the filled glasses glint softly in the candlelight. The guests pronounce the wine excellent and ask what it is. He displays the label, and they gasp. The wine is bottled in Virginia and made from Virginia grapes.

Virginia? Yes, Virginia, there are Virginia wines, and what once was a cottage industry is turning into big business. Encouraged by a 1980 law that cut license fees from $1,000 to $100 and liberalized marketing rules, Virginia winemakers are rapidly expanding their vineyard acreage and their wine output.

From the Northern Neck to the Shenandoah Valley, winemakers are turning out reds, whites and roses that are finding their way into wine shops and supermarkets across Virginia and even in sophisticated Washington. There are now 15 commercial wineries in the state, and several other farms and estates are growing wine grapes as a cash crop.

Until recently, commercial winemaking in Virginia was limited to the Richards plant in Petersburg, which makes low-cost fortified and sweet wines such as Wild Irish Rose from out-of-state grapes. The new industry produces ambitious dinner wines at ambitious prices, up to $8 per bottle.

At an annual production of about 100,000 gallons a year, or about 500,000 bottles, Virginia wineries are hardly ready to challenge California, the industry giant at 330 million gallons a year. But Virginia production is rising rapidly; it is already double that of the better-known wineries in Maryland, and wine experts say it is likely to double in the next three years as new vineyards begin to produce. The larger wineries, such as Piedmont Vineyards near Middleburg, are facing the need to hire migrant farm labor, possibly as early as next summer, because the expanding grape acreage is outstripping the capacity of family operations to tend and harvest the crops.

"It will be a long time before we catch California and New York," said Doug Flemer, manager of the Ingleside Plantation Winery in Oak Grove, on the Northern Neck, "but there is no reason we can't be number three. It takes time and a lot of money, but Virginia has money. It's a matter of expertise and experience."

To cynics, the idea of quality winemaking in Virginia recalls Samuel Johnson's wisecrack that a woman preaching is like a dog walking on its hind legs: "It is not done well, but you are surprised to find it done at all." In fact, the quality of the Virginia wines is uneven, but some have held their own in tastings tests and won awards in competition with California and New York wines. Prominent wine writers and critics such as Leon Adams and Konstantin Frank have given high ratings to some Virginia wines.

In the evolution from hobby to business, Virginia winemaking has attracted a diverse group of entrepreneurs: estate owners seeking income to hold on to their land, retired professionals, farmers seeking diversification, wine lovers fulfilling fantasies.

The first Albemarle Harvest Wine Festival, held last month at the Boar's Head Inn in Charlottesville, attracted the full range, from gnarled farmers examining the tractors to wine cultists in tweeds and bermuda shorts.

The guru of the true believers is Tom O'Grady, owner of Rose Bower vineyard in Hampden-Sydney, whose wine commentaries take the form of love sonnets to his wife, Bronwyn, some of which he read at the Albemarle event. Most of the winemakers, however, seem too busy wrestling with the problems of planting, harvesting, production and marketing to have much time for poetry.

"It's a lot of hard work," said David Mefford, a chemist from Richmond who is soon to retire to his newly established Bacchanal Vineyard in Afton. "We researched it for four years. We traveled all over the world, we went to California and Europe and attended seminars in New York searching for the right place. We have to come up every weekend from February to November to spray, plow, plant and prune."

Bacchanal is not yet producing wine -- that will begin next year -- but Mefford said he sold his grape crop this year to another winery for $1,200 a ton, a good price that convinced him "it's really going to boom."

"This is a seven-day-a-week thing, very hard work," said Walter Luchsinger, winemaker at Piedmont Vineyards. "There's a tremendous front-end load problem, up to 10 years after you plant your grapes before you get any return. A lot of people can't handle it.But a lot of them are real farmers and they know what they're in for."

Piedmont, he said, produced 20,000 gallons of white wine this year, or 100,000 bottles. At a retail price of $7 a bottle for Chardonnay and Semillon and $5 for Seyval Blanc, that represents revenue of over $500,000, but Piedmont, established in 1973, does not expect to break even for another two years.

Piedmont's owner, Elizabeth Furness, a prominent socialite and horsewoman who is now 83 years old, is regarded as the grande dame of the fledgling industry because her vineyard was the first in Virginia to grow European-style grapes, known as vinifera grapes.

Many Virginia vineyards produce French-American hybrid grapes, used mostly to make blended, generic-name wines, such as "Hampden Forest" claret and "Mountain Cove Vineyards" red table wine. Vinifera grapes, which many wine experts' regard as superior, had defied cultivation in Virginia since Thomas Jefferson's time because of the high humidity, variable temperatures and assorted insects.

"They told me Jefferson couldn't do it so I couldn't either," Furness tells visitors to her estate, Waverly. "Jefferson's been dead a long time. He didn't have the sprays we have, he didn't have the chemicals."

Her determination to grow vinifera grapes proved that it can be done, and new vineyards across the state are now growing Chardonnays and rieslings, cabernet sauvignons and semillons. These grapes are producing wines bearing those famous names and revolutionizing the industry in Virginia. At the same time, the blended wines and hybrid vintages at Middleburg's Meredyth Vineyards, Shenandoah Vineyards in Edinburg and other wineries are also finding admirers and expanding markets.

"Technically we have the processes to grow pinot noir and Chardonnay grapes," said Ingleside's Flemer. "But you can make lousy wine from good grapes. Enology is the next step."

At Ingleside, a professional winemaker has been brought in from Belgium. Rapidan River Vineyards, near Culpeper, has a German winemaker and vineyard master. Barboursville Vineyard's winemaker is Italian. At Piedmont, Luchsinger does it himself, but he is not self-taught. A former real estate broker in California, he went to the University of California's agricultural school at Davis to study viticulture and enology.

He and other winemakers agree that as they achieve uniform quality and as output increases, they will have to look for new markets and embark more vigorously on promotion and advertising campaigns. At present, the wines are sold at the wineries, at supermarkets and specialty stores, and in a few restaurants, but there has been little penetration of the market outside Virginia.

"This is the initial stage of an industry, and right now demand is greater than output so we haven't been very concerned with marketing," said Al C. Weed, president of La Abra Winery in Lovingston. "That's probably very shortsighted. At some point you have to either meet the demand or make a virtue out of not meeting it."

Weed thinks the industry needs a collective, cooperative promotion effort to introduce Virginia vintages to tourists, at Williamsburg and other sites, so they will carry the word about the new wines home with them.

The winemakers acknowledge that they face several obstacles in expanding their market:

* Virginia wines are not cheap. At $6 or $7 a bottle, they represent a gamble for prospective purchasers unfamiliar with the product who can get a better-known Spanish or Italian wine for less.

* The Virginia wineries produce no jug or bulk wines, at least not yet. That excludes them from a major portion of the market dominated by Gallo and other California giants. Nor do the new wineries produce the sweet wines that many customers like. "People are talking about dry this and dry that," said one grower, "but they'll go broke unless they make a sweeter wine for the general public."

* Until the late 1960s, Virginia had restrictive liquor laws that kept many state residents unfamiliar with the wine-drinking trend that was sweeping the rest of the country. Even now the state liquor stores carry little wine and the Virginia makers have to sell to independent retailers and restaurateurs.

* The major liquor stores in Washington, a potentially lucrative outlet, either ignore Virginia wines or, if they stock them, carry small quantities on out-of-the-way shelves. "Our wines are available in some of the big stores," Luchsinger said, "but you have to ask for them. The big boys of the industry demand, and get, prominent display space."

One major D.C. store that does carry Virginia wines is Eagle Wine and Liquor, in Georgetown, where the wine manager is Doug Burdette, former president of the local chapter of Les Amis du Vin. His assessment was respectful but not enthusiastic.

Luchsinger and other Virginia winemakers, he said, are "very talented, and doing some very interesting things." In a blind test, he said, he and other experts were unable to identify a Virginia Chardonnay among French and California products.

But as a market item, he said, Virginia wines "still exist mostly as a curiosity. The people who are buying them are mostly people who know about them. It's not the kind of thing we would recommend honestly to someone looking for the best wine at the best price."