To setup a PXE server with dnsmasq is really simple the second time 🙂 This is how I did mine on Ubuntu 12.04, but it should be similar on most Linux distros and versions.
Setup dnsmasq so it is providing DNS and DHCP first. See my How to setup dnsmasq for DNS and DHCP.
This post will explain how to Setup dnsmasq as DNS DHCP.
What is Dnsmaq
This description of dnsmasq shamelessly taken from the dnsmasq home page.
dnsmasq is a lightweight DNS, TFTP, PXE, router advertisement and DHCP server. It is intended to provide coupled DNS and DHCP service to a LAN.