yum -y install dnsmasq

groupadd -r dnsmasq
useradd -r -g dnsmasq dnsmasq

vi /etc/dnsmasq.conf
listen-address=127.0.0.1,192.168.2.5
port=53
bind-interfaces
user=dnsmasq
group=dnsmasq
pid-file=/var/run/dnsmasq.pid

domain-needed
bogus-priv
no-hosts
dns-forward-max=150
cache-size=1000
neg-ttl=3600
resolv-file=/etc/resolv.dnsmasq
no-poll

vi /etc/resolv.dnsmasq
nameserver 192.168.2.1

vi /etc/resolv.conf
nameserver 127.0.0.1

service dnsmasq start; chkconfig dnsmasq on

Appendix I – Full configuration file
#
# Configuration file for dnsmasq acting as a caching nameserver.
#
# Format is one option per line, legal options are the same
# as the long options legal on the command line. See
# "/usr/sbin/dnsmasq --help" or "man 8 dnsmasq" for details.
#
# Updated versions of this configuration file may be available at:
#
#   http://www.g-loaded.eu/2010/09/18/caching-nameserver-using-dnsmasq/
#

#
# Basic server configuration
#

listen-address=127.0.0.1
port=53
bind-interfaces
user=dnsmasq
group=dnsmasq
pid-file=/var/run/dnsmasq.pid

#
# Logging
#

#log-facility=/var/log/dnsmasq.log
#log-queries

#
# Name resolution options
#

domain-needed
bogus-priv
no-hosts
dns-forward-max=150
cache-size=1000
#no-negcache
neg-ttl=3600
resolv-file=/etc/resolv.dnsmasq
no-poll

Appendix II – Logging to file
Before dnsmasq starts logging to file it is required to set the path to the logfile in the log-facility option inside /etc/dnsmasq.conf.

log-facility=/var/log/dnsmasq.log


To ensure proper rotation of the log file you should use the following logrotate configuration:

/var/log/dnsmasq.log {
    monthly
    missingok
    notifempty
    delaycompress
    sharedscripts
    postrotate
        [ ! -f /var/run/dnsmasq.pid ] || kill -USR2 `cat /var/run/dnsmasq.pid`
    endscript
    create 0640 dnsmasq dnsmasq
}

Save the above configuration in /etc/logrotate.d/dnsmasq

please refer : http://www.g-loaded.eu/2010/09/18/caching-nameserver-using-dnsmasq/