diff --git a/cluster/addons/dns/coredns/coredns.yaml.base b/cluster/addons/dns/coredns/coredns.yaml.base
index b04f8fb9cc2..460db6317db 100644
--- a/cluster/addons/dns/coredns/coredns.yaml.base
+++ b/cluster/addons/dns/coredns/coredns.yaml.base
@@ -67,7 +67,7 @@ data:
             lameduck 5s
         }
         ready
-        kubernetes __PILLAR__DNS__DOMAIN__ in-addr.arpa ip6.arpa {
+        kubernetes __DNS__DOMAIN__ in-addr.arpa ip6.arpa {
             pods insecure
             fallthrough in-addr.arpa ip6.arpa
             ttl 30
@@ -136,7 +136,7 @@ spec:
         imagePullPolicy: IfNotPresent
         resources:
           limits:
-            memory: __PILLAR__DNS__MEMORY__LIMIT__
+            memory: __DNS__MEMORY__LIMIT__
           requests:
             cpu: 100m
             memory: 70Mi
@@ -202,7 +202,7 @@ metadata:
 spec:
   selector:
     k8s-app: kube-dns
-  clusterIP: __PILLAR__DNS__SERVER__
+  clusterIP: __DNS__SERVER__
   ports:
   - name: dns
     port: 53
diff --git a/cluster/addons/dns/coredns/coredns.yaml.in b/cluster/addons/dns/coredns/coredns.yaml.in
index dd76ff33f8e..35fd52f15cd 100644
--- a/cluster/addons/dns/coredns/coredns.yaml.in
+++ b/cluster/addons/dns/coredns/coredns.yaml.in
@@ -67,7 +67,7 @@ data:
             lameduck 5s
         }
         ready
-        kubernetes {{ pillar['dns_domain'] }} in-addr.arpa ip6.arpa {
+        kubernetes dns_domain in-addr.arpa ip6.arpa {
             pods insecure
             fallthrough in-addr.arpa ip6.arpa
             ttl 30
@@ -136,7 +136,7 @@ spec:
         imagePullPolicy: IfNotPresent
         resources:
           limits:
-            memory: {{ pillar['dns_memory_limit'] }}
+            memory: 'dns_memory_limit'
           requests:
             cpu: 100m
             memory: 70Mi
@@ -202,7 +202,7 @@ metadata:
 spec:
   selector:
     k8s-app: kube-dns
-  clusterIP: {{ pillar['dns_server'] }}
+  clusterIP: 'dns_server'
   ports:
   - name: dns
     port: 53
diff --git a/cluster/addons/dns/coredns/transforms2salt.sed b/cluster/addons/dns/coredns/transforms2salt.sed
index 4d65cac1f92..6183aee5fe3 100644
--- a/cluster/addons/dns/coredns/transforms2salt.sed
+++ b/cluster/addons/dns/coredns/transforms2salt.sed
@@ -1,5 +1,5 @@
-s/__PILLAR__DNS__SERVER__/{{ pillar['dns_server'] }}/g
-s/__PILLAR__DNS__DOMAIN__/{{ pillar['dns_domain'] }}/g
-s/__PILLAR__CLUSTER_CIDR__/{{ pillar['service_cluster_ip_range'] }}/g
-s/__PILLAR__DNS__MEMORY__LIMIT__/{{ pillar['dns_memory_limit'] }}/g
+s/__DNS__SERVER__/{{ pillar['dns_server'] }}/g
+s/__DNS__DOMAIN__/{{ pillar['dns_domain'] }}/g
+s/__CLUSTER_CIDR__/{{ pillar['service_cluster_ip_range'] }}/g
+s/__DNS__MEMORY__LIMIT__/{{ pillar['dns_memory_limit'] }}/g
 s/__MACHINE_GENERATED_WARNING__/Warning: This is a file generated from the base underscore template file: __SOURCE_FILENAME__/g
diff --git a/cluster/addons/dns/coredns/transforms2sed.sed b/cluster/addons/dns/coredns/transforms2sed.sed
index d13e358ce1b..f8285b401e1 100644
--- a/cluster/addons/dns/coredns/transforms2sed.sed
+++ b/cluster/addons/dns/coredns/transforms2sed.sed
@@ -1,5 +1,5 @@
-s/__PILLAR__DNS__SERVER__/$DNS_SERVER_IP/g
-s/__PILLAR__DNS__DOMAIN__/$DNS_DOMAIN/g
-s/__PILLAR__CLUSTER_CIDR__/$SERVICE_CLUSTER_IP_RANGE/g
-s/__PILLAR__DNS__MEMORY__LIMIT__/$DNS_MEMORY_LIMIT/g
+s/__DNS__SERVER__/$DNS_SERVER_IP/g
+s/__DNS__DOMAIN__/$DNS_DOMAIN/g
+s/__CLUSTER_CIDR__/$SERVICE_CLUSTER_IP_RANGE/g
+s/__DNS__MEMORY__LIMIT__/$DNS_MEMORY_LIMIT/g
 s/__MACHINE_GENERATED_WARNING__/Warning: This is a file generated from the base underscore template file: __SOURCE_FILENAME__/g
diff --git a/cluster/addons/dns/kube-dns/kube-dns.yaml.base b/cluster/addons/dns/kube-dns/kube-dns.yaml.base
index b6b288447a4..cab6d98234d 100644
--- a/cluster/addons/dns/kube-dns/kube-dns.yaml.base
+++ b/cluster/addons/dns/kube-dns/kube-dns.yaml.base
@@ -30,7 +30,7 @@ metadata:
 spec:
   selector:
     k8s-app: kube-dns
-  clusterIP: __PILLAR__DNS__SERVER__
+  clusterIP: __DNS__SERVER__
   ports:
   - name: dns
     port: 53
@@ -123,7 +123,7 @@ spec:
           # guaranteed class. Currently, this container falls into the
           # "burstable" category so the kubelet doesn't backoff from restarting it.
           limits:
-            memory: __PILLAR__DNS__MEMORY__LIMIT__
+            memory: __DNS__MEMORY__LIMIT__
           requests:
             cpu: 100m
             memory: 70Mi
@@ -146,7 +146,7 @@ spec:
           initialDelaySeconds: 3
           timeoutSeconds: 5
         args:
-        - --domain=__PILLAR__DNS__DOMAIN__.
+        - --domain=__DNS__DOMAIN__.
         - --dns-port=10053
         - --config-dir=/kube-dns-config
         - --v=2
@@ -193,7 +193,7 @@ spec:
         - --no-negcache
         - --dns-loop-detect
         - --log-facility=-
-        - --server=/__PILLAR__DNS__DOMAIN__/127.0.0.1#10053
+        - --server=/__DNS__DOMAIN__/127.0.0.1#10053
         - --server=/in-addr.arpa/127.0.0.1#10053
         - --server=/ip6.arpa/127.0.0.1#10053
         ports:
@@ -232,8 +232,8 @@ spec:
         args:
         - --v=2
         - --logtostderr
-        - --probe=kubedns,127.0.0.1:10053,kubernetes.default.svc.__PILLAR__DNS__DOMAIN__,5,SRV
-        - --probe=dnsmasq,127.0.0.1:53,kubernetes.default.svc.__PILLAR__DNS__DOMAIN__,5,SRV
+        - --probe=kubedns,127.0.0.1:10053,kubernetes.default.svc.__DNS__DOMAIN__,5,SRV
+        - --probe=dnsmasq,127.0.0.1:53,kubernetes.default.svc.__DNS__DOMAIN__,5,SRV
         ports:
         - containerPort: 10054
           name: metrics
diff --git a/cluster/addons/dns/kube-dns/kube-dns.yaml.in b/cluster/addons/dns/kube-dns/kube-dns.yaml.in
index 7a539d34e56..e4ae3500cca 100644
--- a/cluster/addons/dns/kube-dns/kube-dns.yaml.in
+++ b/cluster/addons/dns/kube-dns/kube-dns.yaml.in
@@ -30,7 +30,7 @@ metadata:
 spec:
   selector:
     k8s-app: kube-dns
-  clusterIP: {{ pillar['dns_server'] }}
+  clusterIP: dns_server
   ports:
   - name: dns
     port: 53
@@ -123,7 +123,7 @@ spec:
           # guaranteed class. Currently, this container falls into the
           # "burstable" category so the kubelet doesn't backoff from restarting it.
           limits:
-            memory: {{ pillar['dns_memory_limit'] }}
+            memory: 'dns_memory_limit'
           requests:
             cpu: 100m
             memory: 70Mi
@@ -146,7 +146,7 @@ spec:
           initialDelaySeconds: 3
           timeoutSeconds: 5
         args:
-        - --domain={{ pillar['dns_domain'] }}.
+        - --domain=dns_domain.
         - --dns-port=10053
         - --config-dir=/kube-dns-config
         - --v=2
@@ -193,7 +193,7 @@ spec:
         - --no-negcache
         - --dns-loop-detect
         - --log-facility=-
-        - --server=/{{ pillar['dns_domain'] }}/127.0.0.1#10053
+        - --server=/dns_domain/127.0.0.1#10053
         - --server=/in-addr.arpa/127.0.0.1#10053
         - --server=/ip6.arpa/127.0.0.1#10053
         ports:
@@ -232,8 +232,8 @@ spec:
         args:
         - --v=2
         - --logtostderr
-        - --probe=kubedns,127.0.0.1:10053,kubernetes.default.svc.{{ pillar['dns_domain'] }},5,SRV
-        - --probe=dnsmasq,127.0.0.1:53,kubernetes.default.svc.{{ pillar['dns_domain'] }},5,SRV
+        - --probe=kubedns,127.0.0.1:10053,kubernetes.default.svc.dns_domain,5,SRV
+        - --probe=dnsmasq,127.0.0.1:53,kubernetes.default.svc.dns_domain,5,SRV
         ports:
         - containerPort: 10054
           name: metrics
diff --git a/cluster/addons/dns/kube-dns/transforms2salt.sed b/cluster/addons/dns/kube-dns/transforms2salt.sed
index 4d65cac1f92..6183aee5fe3 100644
--- a/cluster/addons/dns/kube-dns/transforms2salt.sed
+++ b/cluster/addons/dns/kube-dns/transforms2salt.sed
@@ -1,5 +1,5 @@
-s/__PILLAR__DNS__SERVER__/{{ pillar['dns_server'] }}/g
-s/__PILLAR__DNS__DOMAIN__/{{ pillar['dns_domain'] }}/g
-s/__PILLAR__CLUSTER_CIDR__/{{ pillar['service_cluster_ip_range'] }}/g
-s/__PILLAR__DNS__MEMORY__LIMIT__/{{ pillar['dns_memory_limit'] }}/g
+s/__DNS__SERVER__/{{ pillar['dns_server'] }}/g
+s/__DNS__DOMAIN__/{{ pillar['dns_domain'] }}/g
+s/__CLUSTER_CIDR__/{{ pillar['service_cluster_ip_range'] }}/g
+s/__DNS__MEMORY__LIMIT__/{{ pillar['dns_memory_limit'] }}/g
 s/__MACHINE_GENERATED_WARNING__/Warning: This is a file generated from the base underscore template file: __SOURCE_FILENAME__/g
diff --git a/cluster/addons/dns/kube-dns/transforms2sed.sed b/cluster/addons/dns/kube-dns/transforms2sed.sed
index d13e358ce1b..f8285b401e1 100644
--- a/cluster/addons/dns/kube-dns/transforms2sed.sed
+++ b/cluster/addons/dns/kube-dns/transforms2sed.sed
@@ -1,5 +1,5 @@
-s/__PILLAR__DNS__SERVER__/$DNS_SERVER_IP/g
-s/__PILLAR__DNS__DOMAIN__/$DNS_DOMAIN/g
-s/__PILLAR__CLUSTER_CIDR__/$SERVICE_CLUSTER_IP_RANGE/g
-s/__PILLAR__DNS__MEMORY__LIMIT__/$DNS_MEMORY_LIMIT/g
+s/__DNS__SERVER__/$DNS_SERVER_IP/g
+s/__DNS__DOMAIN__/$DNS_DOMAIN/g
+s/__CLUSTER_CIDR__/$SERVICE_CLUSTER_IP_RANGE/g
+s/__DNS__MEMORY__LIMIT__/$DNS_MEMORY_LIMIT/g
 s/__MACHINE_GENERATED_WARNING__/Warning: This is a file generated from the base underscore template file: __SOURCE_FILENAME__/g
diff --git a/cluster/gce/gci/configure-helper.sh b/cluster/gce/gci/configure-helper.sh
index 2817379bdfa..fc9f270fd5c 100644
--- a/cluster/gce/gci/configure-helper.sh
+++ b/cluster/gce/gci/configure-helper.sh
@@ -2394,10 +2394,10 @@ function setup-coredns-manifest {
   local -r coredns_file="${dst_dir}/0-dns/coredns/coredns.yaml"
   mv "${dst_dir}/0-dns/coredns/coredns.yaml.in" "${coredns_file}"
   # Replace the salt configurations with variable values.
-  sed -i -e "s@{{ *pillar\['dns_domain'\] *}}@${DNS_DOMAIN}@g" "${coredns_file}"
-  sed -i -e "s@{{ *pillar\['dns_server'\] *}}@${DNS_SERVER_IP}@g" "${coredns_file}"
+  sed -i -e "s@dns_domain@${DNS_DOMAIN}@g" "${coredns_file}"
+  sed -i -e "s@dns_server@${DNS_SERVER_IP}@g" "${coredns_file}"
   sed -i -e "s@{{ *pillar\['service_cluster_ip_range'\] *}}@${SERVICE_CLUSTER_IP_RANGE}@g" "${coredns_file}"
-  sed -i -e "s@{{ *pillar\['dns_memory_limit'\] *}}@${DNS_MEMORY_LIMIT:-170Mi}@g" "${coredns_file}"
+  sed -i -e "s@dns_memory_limit@${DNS_MEMORY_LIMIT:-170Mi}@g" "${coredns_file}"
 
   if [[ "${ENABLE_DNS_HORIZONTAL_AUTOSCALER:-}" == "true" ]]; then
     setup-addon-manifests "addons" "dns-horizontal-autoscaler" "gce"
@@ -2447,9 +2447,9 @@ EOF
     update-prometheus-to-sd-parameters "${kubedns_file}"
   fi
   # Replace the salt configurations with variable values.
-  sed -i -e "s@{{ *pillar\['dns_domain'\] *}}@${DNS_DOMAIN}@g" "${kubedns_file}"
-  sed -i -e "s@{{ *pillar\['dns_server'\] *}}@${DNS_SERVER_IP}@g" "${kubedns_file}"
-  sed -i -e "s@{{ *pillar\['dns_memory_limit'\] *}}@${DNS_MEMORY_LIMIT:-170Mi}@g" "${kubedns_file}"
+  sed -i -e "s@dns_domain@${DNS_DOMAIN}@g" "${kubedns_file}"
+  sed -i -e "s@dns_server@${DNS_SERVER_IP}@g" "${kubedns_file}"
+  sed -i -e "s@dns_memory_limit@${DNS_MEMORY_LIMIT:-170Mi}@g" "${kubedns_file}"
 
   if [[ "${ENABLE_DNS_HORIZONTAL_AUTOSCALER:-}" == "true" ]]; then
     setup-addon-manifests "addons" "dns-horizontal-autoscaler" "gce"
@@ -2464,9 +2464,9 @@ function setup-nodelocaldns-manifest {
   local -r localdns_file="${dst_dir}/0-dns/nodelocaldns/nodelocaldns.yaml"
   setup-addon-custom-yaml "addons" "0-dns/nodelocaldns" "nodelocaldns.yaml" "${CUSTOM_NODELOCAL_DNS_YAML:-}"
   # Replace the sed configurations with variable values.
-  sed -i -e "s/__PILLAR__DNS__DOMAIN__/${DNS_DOMAIN}/g" "${localdns_file}"
-  sed -i -e "s/__PILLAR__DNS__SERVER__/${DNS_SERVER_IP}/g" "${localdns_file}"
-  sed -i -e "s/__PILLAR__LOCAL__DNS__/${LOCAL_DNS_IP}/g" "${localdns_file}"
+  sed -i -e "s/_.*_DNS__DOMAIN__/${DNS_DOMAIN}/g" "${localdns_file}"
+  sed -i -e "s/_.*_DNS__SERVER__/${DNS_SERVER_IP}/g" "${localdns_file}"
+  sed -i -e "s/_.*_LOCAL__DNS__/${LOCAL_DNS_IP}/g" "${localdns_file}"
 }
 
 # Sets up the manifests of netd for k8s addons.
diff --git a/hack/local-up-cluster.sh b/hack/local-up-cluster.sh
index 8048c87865b..8ebd8d7b942 100755
--- a/hack/local-up-cluster.sh
+++ b/hack/local-up-cluster.sh
@@ -886,22 +886,28 @@ EOF
 function start_kubedns {
     if [[ "${ENABLE_CLUSTER_DNS}" = true ]]; then
         cp "${KUBE_ROOT}/cluster/addons/dns/kube-dns/kube-dns.yaml.in" kube-dns.yaml
-        ${SED} -i -e "s/{{ pillar\['dns_domain'\] }}/${DNS_DOMAIN}/g" kube-dns.yaml
-        ${SED} -i -e "s/{{ pillar\['dns_server'\] }}/${DNS_SERVER_IP}/g" kube-dns.yaml
-        ${SED} -i -e "s/{{ pillar\['dns_memory_limit'\] }}/${DNS_MEMORY_LIMIT}/g" kube-dns.yaml
+        ${SED} -i -e "s/dns_domain/${DNS_DOMAIN}/g" kube-dns.yaml
+        ${SED} -i -e "s/dns_server/${DNS_SERVER_IP}/g" kube-dns.yaml
+        ${SED} -i -e "s/dns_memory_limit/${DNS_MEMORY_LIMIT}/g" kube-dns.yaml
         # TODO update to dns role once we have one.
         # use kubectl to create kubedns addon
-        ${KUBECTL} --kubeconfig="${CERT_DIR}/admin.kubeconfig" --namespace=kube-system create -f kube-dns.yaml
-        echo "Kube-dns addon successfully deployed."
+        if ${KUBECTL} --kubeconfig="${CERT_DIR}/admin.kubeconfig" --namespace=kube-system create -f kube-dns.yaml ; then
+       		echo "Kube-dns addon successfully deployed."
+        else
+		echo "Something is wrong with your DNS input"
+		cat kube-dns.yaml
+		exit 1
+        fi
         rm kube-dns.yaml
     fi
 }
 
 function start_nodelocaldns {
   cp "${KUBE_ROOT}/cluster/addons/dns/nodelocaldns/nodelocaldns.yaml" nodelocaldns.yaml
-  ${SED} -i -e "s/__PILLAR__DNS__DOMAIN__/${DNS_DOMAIN}/g" nodelocaldns.yaml
-  ${SED} -i -e "s/__PILLAR__DNS__SERVER__/${DNS_SERVER_IP}/g" nodelocaldns.yaml
-  ${SED} -i -e "s/__PILLAR__LOCAL__DNS__/${LOCAL_DNS_IP}/g" nodelocaldns.yaml
+  # .* because of the __PILLLAR__ references that eventually will be removed
+  ${SED} -i -e "s/_.*_DNS__DOMAIN__/${DNS_DOMAIN}/g" nodelocaldns.yaml
+  ${SED} -i -e "s/_.*_DNS__SERVER__/${DNS_SERVER_IP}/g" nodelocaldns.yaml
+  ${SED} -i -e "s/_.*_LOCAL__DNS__/${LOCAL_DNS_IP}/g" nodelocaldns.yaml
   # use kubectl to create nodelocaldns addon
   ${KUBECTL} --kubeconfig="${CERT_DIR}/admin.kubeconfig" --namespace=kube-system create -f nodelocaldns.yaml
   echo "NodeLocalDNS addon successfully deployed."