Using Hostapd with dnsmasq to create Virtual Wifi Access Point in Linux

NOTE: This is an alternative branch off from my previous Hostapd guide, which I really recommend going through before this.

In my previous hostapd guide, I used dhcpd to assign IP addresses to the clients connecting to the access point. While this works fine for most scenarios, it is an overkill to use dhcpd for such situations where normally the number of clients is 2-3, or around 20 at max. For such cases, dnsmasq is a better option.

Installing

Install dnsmasq from somewhere

# Arch Linux
sudo pacman -S dnsmasq
# Ubuntu
sudo apt-get install dnsmasq


Configuring dnsmasq
The main reason I am recommending dnsmasq over dhcpd is the ease in configuring it. Less hassle in configuration means less problems and better troubleshooting. Most of the problems users faced in my previous guide was dhcpd related.
The default /etc/dnsmasq.conf explains all its configuration options pretty well, so I will jump straight to what your /etc/dnsmasq.conf should look like.
Just append the following to the /etc/dnsmasq.conf
# disables dnsmasq reading any other files like /etc/resolv.conf for nameservers
no-resolv
# Interface to bind to
interface=wlan0
# Specify starting_range,end_range,lease_time
dhcp-range=10.0.0.3,10.0.0.20,12h
# dns addresses to send to the clients
server=8.8.8.8
server=8.8.4.4

Simple, isn’t it?
Final Steps
The final steps involves enabling NAT to share internet in one network interface  with the clients connected through hostapd.

I have included all the steps to configure wlan interface, enable NAT, start dnsmasq and hostapd in the BASH script below

Let the name of this file be initSoftAP

Copy the content below to the file initSoftAP  (Perform changes if required)
#!/bin/bash
#Initial wifi interface configuration
ifconfig $1 up 10.0.0.1 netmask 255.255.255.0
sleep 2

###########Start dnsmasq, modify if required##########
if [ -z "$(ps -e | grep dnsmasq)" ]
then
 dnsmasq
fi
###########

#Enable NAT
iptables --flush
iptables --table nat --flush
iptables --delete-chain
iptables --table nat --delete-chain
iptables --table nat --append POSTROUTING --out-interface $2 -j MASQUERADE
iptables --append FORWARD --in-interface $1 -j ACCEPT

#Thanks to lorenzo
#Uncomment the line below if facing problems while sharing PPPoE, see lorenzo's comment for more details
#iptables -I FORWARD -p tcp --tcp-flags SYN,RST SYN -j TCPMSS --clamp-mss-to-pmtu

sysctl -w net.ipv4.ip_forward=1

#start hostapd
hostapd /etc/hostapd/hostapd.conf 1> /dev/null
killall dnsmasq


It might be more convenient to use hostapd -B /etc/hostapd/hostapd.conf which runs hostapd in background, but take care of the ‘killall dnsmasq’ if you choose this option. (Thanks to Enda for pointing out)
Make this file executable, and run it. The syntax for executing it is
./initSoftAP wifi_card_interface interface_with_internet
chmod +x initSoftAP
./initSoftAP wlan0 eth0  # And there you go

The “wifi_card_interface” will be wlan0 most of the cases. For “interface_with_internet“, since I want to share internet from my ethernet network interface, I used eth0. If I ever want to share internet from my 3g modem, I use ppp0. (These values need not be same for everyone)

You may see available network interfaces by
ifconfig -a