diff --git a/etc/inc/system.inc b/etc/inc/system.inc
index ba47740339..b0196c3cdb 100644
--- a/etc/inc/system.inc
+++ b/etc/inc/system.inc
@@ -295,10 +295,13 @@ function system_hosts_generate() {
 	}
 
 	$syscfg = $config['system'];
-	if (isset($config['unbound']) && isset($config['unbound']['enable']))
-		$dnsmasqcfg = $config['unbound'];
-	else
+	// prefer dnsmasq for hosts generation where it's enabled. It relies
+	// on hosts for name resolution of its overrides, unbound does not.
+	if (isset($config['dnsmasq']) && isset($config['dnsmasq']['enable'])) {
 		$dnsmasqcfg = $config['dnsmasq'];
+	} else {
+		$dnsmasqcfg = $config['unbound'];
+	}
 
 	$hosts =  "127.0.0.1	localhost localhost.{$syscfg['domain']}\n";
 	$hosts .= "::1		localhost localhost.{$syscfg['domain']}\n";