diff --git a/config.yaml b/config.yaml
index 59b91a05..4bfedc99 100644
--- a/config.yaml
+++ b/config.yaml
@@ -127,6 +127,14 @@ options:
       Comma-separated list of key=value config flags with the additional dhcp
       options for neutron dnsmasq. Note, this option is only valid when
       enable-local-dhcp-and-metadata option is set to True.
+  instance-mtu:
+    type: int
+    default:
+    description: |
+      Configure DHCP services to provide MTU configuration to instances
+      within the cloud. This is useful in deployments where its not
+      possible to increase MTU on switches and physical servers to
+      accommodate the packet overhead of using GRE tunnels.
   dns-servers:
     type: string
     default:
diff --git a/hooks/neutron_ovs_context.py b/hooks/neutron_ovs_context.py
index 498b8e1f..a9519483 100644
--- a/hooks/neutron_ovs_context.py
+++ b/hooks/neutron_ovs_context.py
@@ -222,6 +222,8 @@ class DHCPAgentContext(OSContextGenerator):
         if neutron_api_settings.get('dns_domain'):
             ctxt['dns_domain'] = neutron_api_settings.get('dns_domain')
 
+        ctxt['instance_mtu'] = config('instance-mtu')
+
         return ctxt
 
 
diff --git a/templates/dnsmasq.conf b/templates/dnsmasq.conf
index a7d8e928..48a5c032 100644
--- a/templates/dnsmasq.conf
+++ b/templates/dnsmasq.conf
@@ -1,3 +1,6 @@
+{%- if instance_mtu -%}
+dhcp-option=26,{{ instance_mtu }}
+{% endif -%}
 {% if dnsmasq_flags -%}
 {% for key, value in dnsmasq_flags.items() -%}
 {{ key }} = {{ value }}
diff --git a/unit_tests/test_neutron_ovs_context.py b/unit_tests/test_neutron_ovs_context.py
index caa09fb0..bcabd33b 100644
--- a/unit_tests/test_neutron_ovs_context.py
+++ b/unit_tests/test_neutron_ovs_context.py
@@ -294,6 +294,7 @@ class DHCPAgentContextTest(CharmTestCase):
         self.assertEqual(
             context.DHCPAgentContext()(),
             {'dns_domain': 'openstack.example.',
+             'instance_mtu': None,
              'dns_servers': None}
         )
         self.relation_ids.assert_called_with('neutron-plugin')
@@ -325,6 +326,7 @@ class DHCPAgentContextTest(CharmTestCase):
             context.DHCPAgentContext()(),
             {'availability_zone': 'nova',
              'dns_domain': 'openstack.example.',
+             'instance_mtu': None,
              'dns_servers': '8.8.8.8,4.4.4.4'}
         )
         self.relation_ids.assert_called_with('neutron-plugin')
@@ -354,6 +356,7 @@ class DHCPAgentContextTest(CharmTestCase):
         self.assertEqual(
             context.DHCPAgentContext()(),
             {'availability_zone': 'nova',
+             'instance_mtu': None,
              'dns_servers': '8.8.8.8'}
         )
         self.relation_ids.assert_called_with('neutron-plugin')
@@ -390,6 +393,7 @@ class DHCPAgentContextTest(CharmTestCase):
                     'dhcp-match': 'set:ipxe,175',
                     'server': '1.2.3.4',
                 },
+                'instance_mtu': None,
                 'dns_servers': None,
             }
         )