Sorry, but it seems like caches settings, even after Network-manager has been 
After system reboot it was fine with that option, so I copied my file 
configuration back to /etc/NetworkManager/dnsmasq.d, was also fine, but 
settings from that file did not take effect.
After reboot it stops to resolve any DNS address as per description.
here is my conf file:


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  Network manager doesn't work with option: dns=dnsmasq

Status in network-manager package in Ubuntu:

Bug description:
  $ lsb_release -a
  No LSB modules are available.
  Distributor ID:       Ubuntu
  Description:  Ubuntu Bionic Beaver (development branch)
  Release:      18.04
  Codename:     bionic

  $ uname -a
  Linux alex-VirtualBox2 4.15.0-13-generic #14-Ubuntu SMP Sat Mar 17 13:44:27 
UTC 2018 x86_64 x86_64 x86_64 GNU/Linux

  $ apt-cache policy network-manager
    Installed: 1.10.6-2ubuntu1
    Candidate: 1.10.6-2ubuntu1
    Version table:
   *** 1.10.6-2ubuntu1 500
          500 bionic/main amd64 Packages
          100 /var/lib/dpkg/status

  $ apt-cache policy dnsmasq
    Installed: (none)
    Candidate: 2.79-1
    Version table:
       2.79-1 500
          500 bionic/universe amd64 Packages
          500 bionic/universe i386 Packages

  Once I set:
  dns=dnsmasq # <- this line was added

  DNS resolving stops to work.

  $ ping
  ping: Temporary failure in name resolution

  $ nslookup

  ** server can't find SERVFAIL

  it's only one setting I changed. /etc/NetworkManager/dnsmasq.d folder is 

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