This is a fairly old thread but I thought I'd throw my own experience
in. I'm using 16.04.2, and the breakage happened when I last did a
system update (about a week ago). Previously, it was working perfectly
with the following configuration:

1. uninstalled resolvconf
2. Added 'dns=dnsmasq' to /etc/NetworkManager/NetworkManager.conf
3. Using Cisco compatible (vpnc) VPN

My resolv.conf has always used '', and name resolution via
dnsmasq worked fine on or off the VPN. Since the upgrade, dnsmasq name
resolution is broken. If I 'sudo pkill dnsmasq', NetworkManager just
dumps all of the DNS server entries into /etc/resolv.conf and removes (thus temporarily fixing the issue).

If I strace dnsmasq, I can it hitting my local DNS servers (never the
VPN DNS servers) but it still never gets an answer, even for something
like ''.

Here's something weirder. I can start the dnsmasq service (sudo
systemctl start dnsmasq.service) it binds to (NetworkManager-
owned dnsmasq uses This works PERFECTLY. I can dig
@ for pretty much any host on the internet or the VPN and I get
an answer.

The two processes run different commands:
Systemd Service:
/usr/sbin/dnsmasq -x /var/run/dnsmasq/ -u dnsmasq -7 
/etc/dnsmasq.d,.dpkg-dist,.dpkg-old,.dpkg-new --local-service 

NetworkManager owned service:
/usr/sbin/dnsmasq --no-resolv --keep-in-foreground --no-hosts --bind-interfaces 
--pid-file=/var/run/NetworkManager/ --listen-address= 
--cache-size=0 --conf-file=/dev/null --proxy-dnssec 

If I edit the /etc/resolv.conf and as a nameserver and
everything is fine.

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  dnsmasq not working with OpenVPN

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