Can I install Ubuntu from an ISO file on Windows?

I've mounted the ISO file using a virtual drive application. When I open the virtual drive with the Ubuntu ISO mounted, I only have the option of restarting to be able to do anything. However, I couldn't boot from the ISO after restarting.

Is it possible to boot from a mounted ISO file from the first place? Or do I have to burn the image and boot from the physical CD?

When you mount an ISO image as a virtual disk, this happens at the OS level. Not at the hardware level. When your running operating system stops, the virtual device goes away. So no, it is not possible to boot a physical machine from a virtual drive.

Whether or not you need to create physical installation media depends on how you want to install Ubuntu:

If you want Ubuntu installed separately from Windows--either alongside it or replacing it--then you need to create real physical installation media. You can burn the ISO image to a DVD (or to a CD, if you're installing Ubuntu 12.04 or earlier). Or you can write it to a USB flash drive.

If you want to install Ubuntu inside Windows with Wubi (so that it is contained within the pre-existing Windows partition and booted using the Windows boot loader), then you do not need to create physical installation media:

• If you have mounted the ISO image as a virtual disk, just run wubi.exe on the virtual disk. This will install a Wubi Ubuntu system.
• Alternatively, just put wubi.exe (you can download it here) in the same folder as the ISO image, preferably with no other files. Make sure you use the right version of wubi.exe--it must be for the same version of Ubuntu as the ISO image itself. Then just run wubi.exe, and it will automatically detect and use the contents of the ISO image.

If you are doing one of these things and it is not working, then:

• Check the integrity of the ISO image you downloaded.
• If what you're doing involves physical installation media (a CD/DVD or a USB flash drive), make sure you're creating it properly, if it's a CD/DVD try burning it at the slowest possible speed, and whether it's CD/DVD/USB, if you can even begin to boot from it, then check the installation media itself for defects (see also this video).

When you mount a ISO image in Windows using a virtual drive, the image will be available only from within Windows - so, you cannot access it right after restart, before Windows loads.

You need to burn the DVD and boot from it, or to create an USB stick with Ubuntu and boot your computer from that USB stick. Or you can use a Windows installer, which is probably what you want - see instructions here.