Virtual reality has attracted lots of attention recently as a promising tool integrated with motor rehabilitation. Movement modulation in virtual rehabilitation can purposefully influence motor learning by visually changing the virtual representation. Moreover, the effect of movement modulation on the sense of agency and motor performance deserves further in-depth investigations. This paper proposes the design of a virtual rehabilitation system for reaching movements with modulation strategy. The experiment study explored the effect of movement modulation in five modes on agency and motor performance by analyzing data from both subjective responses and objective measures. The results reveal that the sense of agency is significantly influenced by the implemented modulation mode, and there is also a noticeable impact of movement modulation on motor performance in movement trajectory and velocity. The virtual rehabilitation system and the experiment study demonstrated can help support the development of more effective applications for virtual rehabilitation with movement modulation settings.