Configuring the server

Create a file /etc/dnsmasq.d/main.conf containing the following:

# ignore resolv.conf
no-resolv

# use google dns servers for internet lookups
server=8.8.8.8
server=8.8.4.4

# define localdomain, answers for this domain will come from /etc/hosts or static hosts files
local=/local/
auth-zone=/local/

# don't require FQDN for local domain hostnames
expand-hosts

# in addition to entries in /etc/hosts
# read in all the files in this directory for hosts
# entries.  All such files should be in /etc/hosts format
addn-hosts=/etc/dnsmasq.d/static

Enabling and starting the service

systemctl enable dnsmasq.service

systemctl start  dnsmasq.service

Adding/editing a host

# create a one-liner file in /etc/dnsmasq.d/static
# with content ala a host file entry for that host

echo "192.168.0.123 foo.local foo" > /etc/dnsmasq.d/static/foo

# then sighup the dnsmasq process

systemctl kill -s HUP dnsmasq.service

# at this point you should be able to resolv 'foo'

dig foo