I can confirm this problem. Since updating to 16.10 DNS fails when
openvpn connection is enabled in NetworkManager.   Intranet DNS lookups
do not work - so the corporate servers cannot be reached.  Additionally
all my traffic is routed through the VPN and all external internet
traffic is blocked.

A partial fix is to disable dnsmasq in
/etc/NetworkManager/NetworkManager.conf

[main]
plugins=ifupdown,keyfile,ofono
#dns=dnsmasq

[ifupdown]
managed=false

And to restart NM with: sudo service network-manager restart

After this external traffic works again - but intranet hosts are still
not resolvable - so I have to add manual settings in /etc/hosts for the
intranet.

In 16.04 openvpn with pushed DNS worked perfectly - the openvpn server
has not been changed and is still working fine for other clients.

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https://bugs.launchpad.net/bugs/1636395

Title:
  dnsmasq not working with OpenVPN

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