Infrastructure as Code (IaC) is a modern DevOps practice that allows teams to provision, configure, and manage cloud infrastructure using declarative configuration files instead of manual portal-based operations. When working with Microsoft Azure, Terraform is one of the most widely adopted tools for implementing Infrastructure as Code because of its multi-cloud capability, strong state management, and modular design.
This article provides a complete, practical, and enterprise-level guide on how to set up Infrastructure as Code using Terraform for Azure, including architecture concepts, step-by-step configuration, real-world use cases, best practices, comparison with native Azure tools, and production considerations.
What Is Infrastructure as Code (IaC)?
Infrastructure as Code is the process of defining cloud resources such as virtual machines, storage accounts, networks, databases, and Kubernetes clusters using code files. Instead of clicking through the Azure Portal, you describe infrastructure in configuration files, and a tool like Terraform provisions it automatically.
In simple terms, IaC treats infrastructure like application code.
Why IaC Is Important in Cloud Environments
Manual infrastructure management causes:
With IaC:
Infrastructure becomes repeatable
Environments are consistent (Dev, QA, Production)
Changes are version controlled
CI/CD pipelines can provision resources automatically
Disaster recovery becomes easier
Real-World Analogy
Think of IaC like using a blueprint to build houses. Instead of manually constructing each house differently, you use a standardized design to create identical structures every time.
Terraform acts as the construction manager that reads the blueprint and builds the house automatically.
What Is Terraform?
Terraform is an open-source Infrastructure as Code tool developed by HashiCorp. It uses a declarative configuration language called HCL (HashiCorp Configuration Language) to define infrastructure.
Terraform supports:
It is cloud-agnostic and widely used in enterprise DevOps workflows.
How Terraform Works Internally
Terraform follows a three-step workflow:
Write configuration files.
Run terraform plan to preview changes.
Run terraform apply to provision infrastructure.
Internally, Terraform:
Reads configuration files
Compares desired state with current state
Calculates execution plan
Applies required changes
Stores state in a state file
The state file is critical because it tracks resource metadata.
Step 1: Install Terraform
Download Terraform from the official website and verify installation:
terraform --version
Step 2: Authenticate with Azure
Login using Azure CLI:
az login
Terraform uses Azure credentials from CLI session.
Step 3: Create Terraform Configuration File
Create a folder named terraform-azure and inside create main.tf:
provider "azurerm" {
features {}
}
resource "azurerm_resource_group" "example" {
name = "my-terraform-rg"
location = "East US"
}
resource "azurerm_storage_account" "example" {
name = "myterraformstorage123"
resource_group_name = azurerm_resource_group.example.name
location = azurerm_resource_group.example.location
account_tier = "Standard"
account_replication_type = "LRS"
}
This configuration creates:
Resource Group
Storage Account
Step 4: Initialize Terraform
terraform init
This downloads required provider plugins.
Step 5: Preview Execution Plan
terraform plan
Terraform shows what will be created or modified.
Step 6: Apply Configuration
terraform apply
After confirmation, Azure resources are provisioned.
Step 7: Destroy Resources (If Needed)
terraform destroy
This removes infrastructure safely.
Real Business Scenario: Multi-Environment SaaS Platform
Consider a SaaS company with:
Development environment
Staging environment
Production environment
Using Terraform:
Each environment has separate configuration variables.
CI/CD pipeline provisions infrastructure automatically.
Infrastructure changes are reviewed via pull requests.
Rollbacks are controlled via version history.
This eliminates manual configuration and ensures consistency.
Using Variables for Environment Configuration
Create variables.tf:
variable "location" {
default = "East US"
}
Reference in main.tf:
location = var.location
This makes configuration reusable.
Using Remote State (Production Best Practice)
Instead of storing state locally, use Azure Storage:
terraform {
backend "azurerm" {
resource_group_name = "tfstate-rg"
storage_account_name = "tfstatestorage123"
container_name = "tfstate"
key = "prod.terraform.tfstate"
}
}
Remote state enables:
Team collaboration
State locking
Secure storage
Difference: Terraform vs ARM Templates vs Bicep
| Feature | Terraform | ARM Templates | Bicep |
|---|
| Language | HCL | JSON | Domain-specific (simplified) |
| Multi-Cloud Support | Yes | No | No |
| State Management | Yes | No persistent state | No persistent state |
| Learning Curve | Moderate | Complex JSON | Easier than ARM |
| Community Modules | Large ecosystem | Limited | Growing |
| Cloud Portability | High | Azure-only | Azure-only |
| CI/CD Integration | Strong | Strong | Strong |
| Enterprise Adoption | Very High | High | Growing |
| Readability | High | Low (verbose JSON) | High |
Terraform is preferred when multi-cloud or advanced state management is required.
Advantages of Using Terraform for Azure
Declarative infrastructure
Version-controlled environments
Multi-cloud flexibility
Strong modularization support
Large provider ecosystem
Infrastructure reproducibility
Disadvantages
State file management complexity
Additional tool to maintain
Requires understanding of provider configuration
Drift detection must be managed carefully
Common Mistakes Developers Make
Storing state file in local system for production
Hardcoding secrets in configuration files
Not using modules for reusable components
Not reviewing terraform plan before apply
Mixing manual Azure changes with Terraform-managed resources
Best Practices for Enterprise Use
Store state in Azure Storage backend
Use separate state files per environment
Use modules for reusable infrastructure
Integrate Terraform in CI/CD pipeline
Use Azure Key Vault for secrets
Enable state locking
Follow naming conventions consistently
Enterprise Architecture Flow Example
Developer → Git Repository → CI/CD Pipeline → Terraform Plan → Terraform Apply → Azure Infrastructure Provisioned → Monitoring and Logging Enabled
Infrastructure changes become part of software delivery lifecycle.
When NOT to Use Terraform
However, even small teams benefit from adopting IaC early.
FAQ
Is Terraform free to use?
Yes, the open-source version is free.
Can Terraform manage existing Azure resources?
Yes, using terraform import.
Is Terraform suitable for production?
Yes, it is widely used in enterprise production systems.
Conclusion
Setting up Infrastructure as Code using Terraform for Azure enables organizations to provision and manage cloud resources in a consistent, automated, and scalable manner. By defining infrastructure declaratively, maintaining state securely, and integrating Terraform into CI/CD pipelines, teams can eliminate configuration drift, reduce manual errors, and accelerate cloud adoption. While it introduces additional tooling and state management responsibilities, Terraform’s modularity, multi-cloud support, and enterprise-grade capabilities make it a powerful solution for managing modern Azure environments efficiently and reliably.