Each proxy server in the network design must have at least one interface, although most proxy servers have more than one. For each proxy server interface, you must select the interface characteristics so that the proxy server can be integrated into the existing network.

When DHCP proxy is enabled on the controller, the controller unicasts DHCP requests from the client to the configured servers. Consequently, at least one DHCP server must be configured on either the interface associated with the WLAN or the WLAN itself. When DHCP proxy is disabled on the controller, those DHCP packets transmitted to and from the clients are bridged by the controller without any modification to the IP portion of the packet.

Packets received from the client are removed from the CAPWAP tunnel and transmitted on the upstream VLAN. DHCP packets directed to the client are received on the upstream VLAN, converted to 802.11, and transmitted through a CAPWAP tunnel toward the client. As a result, the internal DHCP server cannot be used when DHCP proxy is disabled. The ability to disable DHCP proxy allows organizations to use DHCP servers that do not support Cisco's native proxy mode of operation. It should be disabled only when required by the existing infrastructure.