Simply put proxydhcp is using a separate dhcp from the regular dhcp server to hand out boot parameters. An existing dhcp server isn't modified. Very handy for setting up a PXE environment without access to the existing dhcp infrastructure. [[https://help.ubuntu.com/community/UbuntuLTSP/ProxyDHCP|Ubuntu community docs]] mention that dnsmasq 2.48 or newer supports being a proxydhcp server and that gpxe newer than may 2009 is also needed (gPXE version 0.9.8?). Those docs also mention that proprietary bootroms can also support proxydhcp, so [[pxechaining|chainloaders]] aren't left out. 

Note: dnsmasq 0.52 and newer requires gpxe 1.0.0 or newer. Most likely standards related as Intel UNDI code didn't flinch between dnsmasq versions 0.51 and 0.52.

==== Further reading ====
[[http://en.wikipedia.org/wiki/Preboot_Execution_Environment#Proxy_DHCP|Proxy DHCP section]] on wikipedia

==== very minimal configuration for dnsmasq ====
<code>
#set port to 0 so that dnsmasq knows its not being used as a dns server
port=0 
log-dhcp
dhcp-range=192.168.0.255,proxy
dhcp-boot=http://192.168.0.10/smith
# This line mentions "pxelinux" which by spec would boot pxelinux.0
# doesn't get sent out in packets so this is a trigger
pxe-service=123456789, "Install Linux", pxelinux,0
</code>