Software Defined Networking (SDN) promises greater flexibility for directing packet flows, and Network Function Virtualization promises to enable dynamic management of software-based network functions. However, the current divide between an intelligent control plane and an overly simple, stateless data plane results in the inability to exploit the flexibility of a software based network. In this paper we propose SDNFV, a framework that expands the capabilities of network processing-and-forwarding elements to flexibly manage packet flows, while retaining both a high performance data plane and an easily managed control plane. SDNFV proposes a hierarchical control framework where decisions are made across the SDN controller, a host-level manager, and individual VMs to best exploit state available at each level. This increases the network's flexibility compared to existing SDNs where controllers often make decisions solely based on the first packet header of a flow. SDNFV intelligently places network services across hosts and connects them in sequential and parallel chains, giving both the SDN controller and individual network functions the ability to enhance and update flow rules to adapt to changing conditions. Our prototype demonstrates how to efficiently and flexibly reroute flows based on data plane state such as packet payloads and traffic characteristics.