Don’t edit /etc/hosts any more.

$ apt-get install dnsmasq

$ vi /etc/dnsmasq.conf
interface=lo    # self-service
bind-interface  # multi-tier service

$ vi /etc/dnsmasq.d/fakedomain.net
address=/fakedomain.net/127.0.0.1

$ service dnsmasq restart

$ vi /etc/resolv.conf
nameserver 127.0.0.1

$ host fakedomain.net
fakedomain.net has address 127.0.0.1