option-1:
edit \My Documents\IISExpress\config\applicationhost.config file and enable windowsAuthentication, i.e:
<system.webServer>
...
<security>
...
<authentication>
<windowsAuthentication enabled="true" />
</authentication>
...
</security>
...
</system.webServer>
option-2:
Unlock windowsAuthentication section in \My Documents\IISExpress\config\applicationhost.config as follows
<add name="WindowsAuthenticationModule" lockItem="false" />
Alter override settings for the required authentication types to 'Allow'
<sectionGroup name="security">
...
<sectionGroup name="system.webServer">
...
<sectionGroup name="authentication">
<section name="anonymousAuthentication" overrideModeDefault="Allow" />
...
<section name="windowsAuthentication" overrideModeDefault="Allow" />
</sectionGroup>
</sectionGroup>
Add following in the application's web.config
<?xml version="1.0" encoding="UTF-8"?>
<configuration>
<system.webServer>
<security>
<authentication>
<windowsAuthentication enabled="true" />
</authentication>
</security>
</system.webServer>
</configuration>
Below link may help: http://learn.iis.net/page.aspx/376/delegating-configuration-to-webconfig-files/
After installing VS 2010 SP1 applying option 1 + 2 may be required to get windows authentication working. In addition, you may need to set anonymous authentication to false in IIS Express applicationhost.config:
<authentication>
<anonymousAuthentication enabled="false" userName="" />
for VS2015, the IIS Express applicationhost config file may be located here:
$(solutionDir)\.vs\config\applicationhost.config
and the <UseGlobalApplicationHostFile> option in the project file selects the default or solution-specific config file.