diff --git a/playbooks/roles/bifrost-ironic-install/README.md b/playbooks/roles/bifrost-ironic-install/README.md
index a816a3366..794df28ab 100644
--- a/playbooks/roles/bifrost-ironic-install/README.md
+++ b/playbooks/roles/bifrost-ironic-install/README.md
@@ -67,6 +67,29 @@ The IP address and network interface information which will be used by bare
 metal machines to connect to the conductor and the internal HTTP server,
 and for cross-service interactions.
 
+dhcp_provider: "dnsmasq"
+
+Which ironc DHCP provider to enable. When set to "none" a static dnsmasq
+configuration is used, and host specific DHCP configuration can be set by
+writing files to dhcp-hostsdir ``dnsmasq_dhcp_hostsdir`` and dhcp-optsdir
+``dnsmasq_dhcp_optsdir``.
+
+When set to "dnsmasq" Ironic will manage dhcp-option and dhcp-boot entries on a
+per-node basis by writing files to ``dnsmasq_dhcp_hostsdir`` and
+``dnsmasq_dhcp_optsdir``.
+
+dnsmasq_dhcp_hostsdir: "/etc/dnsmasq.d/bifrost.dhcp-hosts.d"
+
+Directory with static and ironic managed DHCP hosts configuration.
+
+dnsmasq_dhcp_optsdir: "/etc/dnsmasq.d/bifrost.dhcp-opts.d"
+
+Directory with ironic managed DHCP options configuration.
+
+dnsmasq_leases_file: "/var/lib/dnsmasq/dnsmasq.leases"
+
+File which represents dnsmasq leases, used when dhcp_provider == "dnsmasq"
+
 enable_dhcp: false
 
 If you chose to utilize the dhcp server, You may wish to set default ranges:
diff --git a/playbooks/roles/bifrost-ironic-install/defaults/main.yml b/playbooks/roles/bifrost-ironic-install/defaults/main.yml
index 2166630b9..e29fe6521 100644
--- a/playbooks/roles/bifrost-ironic-install/defaults/main.yml
+++ b/playbooks/roles/bifrost-ironic-install/defaults/main.yml
@@ -168,6 +168,7 @@ enable_credential_less_deploy: false
 # default: empty list
 ironic_extra_packages: []
 
+dhcp_provider: "dnsmasq"
 # DHCP pool for requests -- ignored if inventory_dhcp is set to True
 # since IP allocation will be static.
 dhcp_pool_start: 192.168.1.200
@@ -178,8 +179,12 @@ dhcp_static_mask: 255.255.255.0
 # Whether to enable DNS in dnsmasq. Will conflict with any other DNS server,
 # hence disabled by default.
 dnsmasq_enable_dns: "{{ not (dnsmasq_disable_dns | default(True) | bool) }}"
-# Directory with static DHCP hosts configuration.
+# Directory with static and ironic managed DHCP hosts configuration.
 dnsmasq_dhcp_hostsdir: "/etc/dnsmasq.d/bifrost.dhcp-hosts.d"
+# Directory with ironic managed DHCP options configuration.
+dnsmasq_dhcp_optsdir: "/etc/dnsmasq.d/bifrost.dhcp-opts.d"
+# File which represents dnsmasq leases, used when dhcp_provider == "dnsmasq"
+dnsmasq_leases_file: "/var/lib/dnsmasq/dnsmasq.leases"
 # Uncomment to set up directory with additional hosts for DNS. Useless without
 # dnsmasq_enable_dns set to True.
 #dnsmasq_additional_hostsdir: "/etc/dnsmasq.d/bifrost.hosts.d"
diff --git a/playbooks/roles/bifrost-ironic-install/tasks/bootstrap.yml b/playbooks/roles/bifrost-ironic-install/tasks/bootstrap.yml
index be80332a0..9629957e4 100644
--- a/playbooks/roles/bifrost-ironic-install/tasks/bootstrap.yml
+++ b/playbooks/roles/bifrost-ironic-install/tasks/bootstrap.yml
@@ -297,13 +297,21 @@
     mode: 0755
   when: dnsmasq_additional_hostsdir is defined
 
-- name: "Setup inventory DHCP hosts directory"
+- name: "Setup inventory DHCP and ironic managed hosts directory"
   file:
     path: "{{ dnsmasq_dhcp_hostsdir }}"
     state: directory
     owner: "dnsmasq"
     group: "ironic"
-    mode: 0755
+    mode: 0775
+
+- name: "Setup ironic managed DHCP options directory"
+  file:
+    path: "{{ dnsmasq_dhcp_optsdir }}"
+    state: directory
+    owner: "dnsmasq"
+    group: "ironic"
+    mode: 0775
 
 - name: "Retrieve interface IP informations"
   set_fact:
diff --git a/playbooks/roles/bifrost-ironic-install/templates/dnsmasq.conf.j2 b/playbooks/roles/bifrost-ironic-install/templates/dnsmasq.conf.j2
index 78d725fb2..83252f594 100644
--- a/playbooks/roles/bifrost-ironic-install/templates/dnsmasq.conf.j2
+++ b/playbooks/roles/bifrost-ironic-install/templates/dnsmasq.conf.j2
@@ -87,13 +87,16 @@ dhcp-option=6,{{dnsmasq_dns_servers}}
 dhcp-option=42,{{dnsmasq_ntp_servers}}
 {% endif %}
 
+dhcp-match=set:ipxe,175 # iPXE sends a 175 option.
+
+dhcp-optsdir={{ dnsmasq_dhcp_optsdir }}
+{% if dhcp_provider == 'none' %}
 # Boot for Etherboot gPXE. The idea is to send two different
 # filenames, the first loads gPXE, and the second tells gPXE what to
 # load. The dhcp-match sets the gpxe tag for requests from gPXE.
 dhcp-userclass=set:gpxe,"gPXE"
 dhcp-boot=tag:gpxe,/ipxe.pxe
 
-dhcp-match=set:ipxe,175 # iPXE sends a 175 option.
 {% if enable_uefi_ipxe | bool == true %}
 dhcp-match=set:efi,option:client-arch,7
 dhcp-match=set:efi,option:client-arch,9
@@ -110,6 +113,7 @@ dhcp-boot=tag:ipxe,http://{{ internal_ip }}:{{ file_url_port }}/boot.ipxe
 
 # Catch-all boot options used when no other boot options are matched.
 dhcp-boot=/undionly.kpxe
+{% endif %}
 
 {% if testing | bool == true %}
 log-queries
diff --git a/playbooks/roles/bifrost-ironic-install/templates/ironic.conf.j2 b/playbooks/roles/bifrost-ironic-install/templates/ironic.conf.j2
index b11192408..d2c21f82c 100644
--- a/playbooks/roles/bifrost-ironic-install/templates/ironic.conf.j2
+++ b/playbooks/roles/bifrost-ironic-install/templates/ironic.conf.j2
@@ -3,7 +3,7 @@
 [DEFAULT]
 debug = {{ ironic_debug | bool }}
 # NOTE(TheJulia): Until Bifrost supports neutron or some other network
-# configuration besides a flat network where bifrost orchustrates the
+# configuration besides a flat network where bifrost orchestrates the
 # control instead of ironic, noop is the only available network driver.
 enabled_network_interfaces = noop
 default_deploy_interface = {{ default_deploy_interface }}
@@ -121,7 +121,14 @@ send_sensor_data_interval = {{ sensor_data_interval }}
 connection = mysql+pymysql://{{ ironic.database.username }}:{{ ironic.database.password }}@{{ ironic.database.host }}/{{ ironic.database.name }}?charset=utf8
 
 [dhcp]
-dhcp_provider = none
+dhcp_provider = {{ dhcp_provider }}
+
+{% if dhcp_provider == 'dnsmasq' %}
+[dnsmasq]
+dhcp_hostsdir = {{ dnsmasq_dhcp_hostsdir }}
+dhcp_optsdir = {{ dnsmasq_dhcp_optsdir }}
+leases_file = {{ dnsmasq_leases_file }}
+{% endif %}
 
 {% if enable_cors | bool == true %}
 [cors]
diff --git a/scripts/test-bifrost.sh b/scripts/test-bifrost.sh
index 2b391d0bd..cea320657 100755
--- a/scripts/test-bifrost.sh
+++ b/scripts/test-bifrost.sh
@@ -94,6 +94,7 @@ if [ ${USE_DHCP} = "true" ]; then
     INVENTORY_DHCP=true
     INVENTORY_DHCP_STATIC_IP=true
     WRITE_INTERFACES_FILE=false
+    CLOUD_CONFIG+=" -e dhcp_provider=none"
 elif [ ${BUILD_IMAGE} = "true" ]; then
     USE_CIRROS=false
     TESTING_USER=root