How To Add and Manage a Custom Domain in Microsoft Entra ID 

Setting up a custom domain in Microsoft Entra ID is a critical step for organizations using Microsoft 365, Azure, and cloud-based identity services. A custom domain allows users to sign in with a branded email address like name@yourcompany.com instead of the default onmicrosoft.com domain, improving security, professionalism, and identity consistency. 

This guide explains what a custom domain is, why it matters for Microsoft Entra ID, and how to configure it correctly to avoid licensing or identity issues later. 

What Is a Custom Domain in Microsoft Entra ID? 

A custom domain is a verified domain name that you add to Microsoft Entra ID for use across identity and access services. Once added, the domain can be assigned to users, groups, and service accounts and used throughout Microsoft 365, Entra ID, and integrated applications. 

Using a custom domain ensures your organization maintains a consistent identity across email, authentication, collaboration tools, and security platforms. 

Why Custom Domains Matter for Microsoft Cloud Environments 

Adding a custom domain offers both operational and security benefits. 

Key advantages include: 

• Clear, trusted external communications through branded email addresses and Microsoft Teams identities 

• Simplified identity management across Microsoft services 

• Improved trust with customers and partners 

• Easier application integrations 

• Better alignment with security, governance, and compliance requirements 

For organizations operating in regulated industries or government-adjacent environments, consistent identity management is essential for long-term control and audit readiness. 

Prerequisites Before Adding a Custom Domain 

Before adding a custom domain to Microsoft Entra ID, confirm the following: 

• You own the domain and have access to your DNS registrar 

• You have at least the Domain Name Administrator role in Microsoft Entra ID 

• The domain is not already verified in another Microsoft 365 tenant. 

• The domain is not actively used with existing email or identity services 

If the domain is already used with Exchange Online or another email provider, configuration order matters to avoid service disruptions or authentication issues. 

Organizations should first identify where the domain is currently in use and verify it in Microsoft Entra ID without changing DNS records. This allows identity configuration and validation to occur without impacting existing mail flow or access. 

User identities, service accounts, and application integrations should be aligned and tested before any DNS updates are made. Only after validation should records such as MX, Autodiscover, and SPF be changed. This sequencing reduces the risk of email outages, broken authentication, and loss of access for users or external collaborators. 

For regulated and government-adjacent organizations, following a deliberate configuration order supports continuity, audit readiness, and controlled change management. 

Step by Step: How to Add a Custom Domain in Microsoft Entra ID 

1. Sign in to the Microsoft Entra admin center with an account with appropriate permissions. 

2. Navigate to EntraID, then select Domain names. 

3. Choose Add custom domain and enter your domain name. 

4. Microsoft provides the DNS information (either a TXT record or an MX record) required to validate your domain ownership  

5. Add the record to your DNS registrar. 

6. Return to the admin center and select Verify to make sure your custom domain is properly registered and is valid. 

Once verified, the domain becomes available for assignment within your tenant. 

Setting a Default Domain in Entra ID 

After the domain is verified, you can designate it as the default domain. This ensures all newly created users automatically receive identities and email addresses using your custom domain instead of the onmicrosoft.com domain. Setting this early helps maintain long-term consistency and avoids cleanup work later. 

Steps to set a default domain in Microsoft Entra ID: 

1. Sign in to the Microsoft Entra admin center. 

2. Navigate to EntraID, then select Domain names. 

3. Select the verified custom domain from the list. 

4. Click Set as default. 

5. Confirm the change when prompted. 

Once set, the default domain will be used for new user principal names and email address assignments moving forward. Existing users are not automatically updated and must be changed separately if needed. 

For regulated or government-adjacent environments, setting the default domain at the correct point in the rollout helps enforce naming standards, reduce configuration drift, and support consistent identity governance over time. 

Common Custom Domain Configuration Mistakes 

Even though the setup process is straightforward, organizations often encounter issues due to poor planning or licensing misalignment. 

Common mistakes include: 

• Verifying the domain but not updating user identities 

• Overlooking DNS dependencies for email and authentication 

• Assigning incorrect Microsoft licenses after domain changes 

• Not accounting for legacy sign-in configurations 

These errors can cause authentication failures or unexpected licensing costs. 

The Role of Microsoft Licensing in Domain Setup 

Microsoft Entra ID configuration is closely tied to licensing. The licenses assigned to users determine which identity features are available, including security controls, conditional access, and advanced governance. 

At CloudFit, we help organizations align Microsoft licensing with identity and domain configuration so changes do not lead to compliance or cost issues.  

As a Microsoft licensing partner, we assist customers with: 

• License validation before identity changes 

• Avoiding over-licensing or unused subscriptions 

• Aligning Entra ID, Microsoft 365, and Azure licensing 

• Supporting regulated and compliance-driven environments 

The right licensing strategy ensures your custom domain setup supports both current needs and future growth. 

Frequently Asked Questions: Custom Domains in Microsoft Entra ID 

What is Microsoft Entra ID used for? 

Microsoft Entra ID is Microsoft’s cloud-based identity and access management service. It controls how users sign in to Microsoft 365, Azure, and third-party applications, and it helps organizations enforce security, conditional access, and governance policies. 

Do I need a custom domain for Microsoft Entra ID? 

A custom domain is not required, but it is strongly recommended. Using a custom domain ensures that emails, Microsoft Teams messages, and shared resources are presented to external recipients from a trusted, recognizable domain rather than the default onmicrosoft.com domain. This improves credibility with customers, partners, and auditors while reducing confusion or delivery issues caused by unfamiliar domains. 

A custom domain also supports long-term identity consistency across Microsoft services, making it easier to manage users, applications, and policies as your environment grows. For regulated or government-adjacent organizations, this consistency helps reinforce governance standards and simplifies audit and compliance activities over time. 

Is adding a custom domain to Entra ID free? 

Adding and verifying a custom domain in Microsoft Entra ID is free. However, the identity features available after the domain is added depend on the Microsoft licenses assigned to your users, such as Microsoft Entra ID P1 or P2, Microsoft 365, or other security and compliance licenses. 

Can I use the same domain for Microsoft 365 and Entra ID? 

Yes. The same domain is typically used across Microsoft Entra ID, Microsoft 365, Exchange Online, and other Microsoft services. Proper planning is important to ensure DNS records, email routing, and identity settings are configured in the correct order. 

How long does domain verification take in Microsoft Entra ID? 

Verification usually completes within minutes after the correct DNS record is added. In some cases, DNS propagation can take longer depending on your registrar, but most organizations complete verification the same day. 

What happens to existing users after adding a custom domain? 

Existing users keep their current sign-in until you update their user principal name to the new custom domain. This can be done individually or in bulk. Setting the new domain as the default ensures new users are created using the custom domain automatically. 

Does Microsoft licensing affect Entra ID domain configuration? 

Yes. Licensing determines which Entra ID features are available, including conditional access, identity protection, and governance capabilities. Aligning licensing with your domain and identity strategy helps avoid gaps in security and unnecessary costs. 

Can CloudFit help with Entra ID and Microsoft licensing? 

Yes. CloudFit is a Microsoft licensing partner that helps organizations configure Entra ID correctly, align identity changes with licensing, and avoid common misconfigurations. We support organizations looking to add custom domains, optimize licenses, and build secure, scalable Microsoft cloud environments. 

Final Thoughts 

Adding a custom domain to Microsoft Entra ID strengthens identity management, enhances professionalism, and improves security across Microsoft cloud services. When paired with the correct Microsoft licensing, it creates a reliable foundation for secure operations and scalability. 

If you are planning to add a custom domain or want a second look at your Microsoft licensing strategy, CloudFit can help. Our licensing experts provide guidance, competitive pricing, and hands-on support to make sure your Microsoft environment is configured correctly from day one. Purchase your Microsoft licenses today with CloudFit.