diff --git a/apps/openstacknetworking/openstackswitching/src/main/java/org/onosproject/openstacknetworking/switching/OpenstackArpHandler.java b/apps/openstacknetworking/openstackswitching/src/main/java/org/onosproject/openstacknetworking/switching/OpenstackArpHandler.java
new file mode 100644
index 0000000..415b6d2
--- /dev/null
+++ b/apps/openstacknetworking/openstackswitching/src/main/java/org/onosproject/openstacknetworking/switching/OpenstackArpHandler.java
@@ -0,0 +1,163 @@
+/*
+* Copyright 2015-2016 Open Networking Laboratory
+*
+* Licensed under the Apache License, Version 2.0 (the "License");
+* you may not use this file except in compliance with the License.
+* You may obtain a copy of the License at
+*
+*     http://www.apache.org/licenses/LICENSE-2.0
+*
+* Unless required by applicable law or agreed to in writing, software
+* distributed under the License is distributed on an "AS IS" BASIS,
+* WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+* See the License for the specific language governing permissions and
+* limitations under the License.
+*/
+package org.onosproject.openstacknetworking.switching;
+
+import org.onlab.packet.ARP;
+import org.onlab.packet.Ethernet;
+import org.onlab.packet.Ip4Address;
+import org.onlab.packet.IpAddress;
+import org.onlab.packet.MacAddress;
+import org.onosproject.net.Host;
+import org.onosproject.net.flow.DefaultTrafficTreatment;
+import org.onosproject.net.flow.TrafficTreatment;
+import org.onosproject.net.host.HostService;
+import org.onosproject.net.packet.DefaultOutboundPacket;
+import org.onosproject.net.packet.InboundPacket;
+import org.onosproject.net.packet.PacketService;
+import org.onosproject.openstacknetworking.OpenstackNetworkingService;
+import org.onosproject.openstacknetworking.OpenstackPort;
+import org.onosproject.openstacknetworking.OpenstackPortInfo;
+import org.slf4j.Logger;
+import org.slf4j.LoggerFactory;
+import java.nio.ByteBuffer;
+import java.util.Collection;
+
+import static com.google.common.base.Preconditions.checkNotNull;
+
+/**
+ * Handles ARP packet from VMs.
+ */
+public class OpenstackArpHandler {
+
+    private static Logger log = LoggerFactory
+            .getLogger(OpenstackArpHandler.class);
+    private static final MacAddress GATEWAY_MAC = MacAddress.valueOf("1f:1f:1f:1f:1f:1f");
+    private PacketService packetService;
+    private OpenstackNetworkingService openstackService;
+    private HostService hostService;
+
+    /**
+     * Returns OpenstackArpHandler reference.
+     *
+     * @param openstackService OpenstackNetworkingService reference
+     * @param packetService PacketService reference
+     * @param hostService host service
+     */
+    public OpenstackArpHandler(OpenstackNetworkingService openstackService, PacketService packetService,
+                               HostService hostService) {
+        this.openstackService = openstackService;
+        this.packetService = packetService;
+        this.hostService = hostService;
+    }
+
+    /**
+     * Processes ARP request packets.
+     * It checks if the target IP is owned by a known host first and then ask to
+     * OpenStack if it's not. This ARP proxy does not support overlapping IP.
+     *
+     * @param pkt ARP request packet
+     */
+    public void processPacketIn(InboundPacket pkt, Collection<OpenstackPortInfo> openstackPortInfoCollection) {
+        Ethernet ethRequest = pkt.parsed();
+        ARP arp = (ARP) ethRequest.getPayload();
+
+        if (arp.getOpCode() != ARP.OP_REQUEST) {
+            return;
+        }
+
+        IpAddress sourceIp = Ip4Address.valueOf(arp.getSenderProtocolAddress());
+        MacAddress srcMac = MacAddress.valueOf(arp.getSenderHardwareAddress());
+        OpenstackPortInfo portInfo = openstackPortInfoCollection.stream()
+                .filter(p -> p.ip().equals(sourceIp) && p.mac().equals(srcMac)).findFirst().orElse(null);
+        IpAddress targetIp = Ip4Address.valueOf(arp.getTargetProtocolAddress());
+
+        MacAddress dstMac;
+
+        if (targetIp.equals(portInfo == null ? null : portInfo.gatewayIP())) {
+            dstMac = GATEWAY_MAC;
+        } else {
+            dstMac = getMacFromHostService(targetIp);
+            if (dstMac == null) {
+                dstMac = getMacFromOpenstack(targetIp);
+            }
+        }
+
+        if (dstMac == null) {
+            log.debug("Failed to find MAC address for {}", targetIp.toString());
+            return;
+        }
+
+        Ethernet ethReply = ARP.buildArpReply(targetIp.getIp4Address(),
+                                              dstMac,
+                                              ethRequest);
+
+        TrafficTreatment treatment = DefaultTrafficTreatment.builder()
+                .setOutput(pkt.receivedFrom().port())
+                .build();
+
+        packetService.emit(new DefaultOutboundPacket(
+                pkt.receivedFrom().deviceId(),
+                treatment,
+                ByteBuffer.wrap(ethReply.serialize())));
+    }
+
+    /**
+     * Returns MAC address of a host with a given target IP address by asking to
+     * OpenStack. It does not support overlapping IP.
+     *
+     * @param targetIp target ip address
+     * @return mac address, or null if it fails to fetch the mac
+     */
+    private MacAddress getMacFromOpenstack(IpAddress targetIp) {
+        checkNotNull(targetIp);
+
+        OpenstackPort openstackPort = openstackService.ports()
+                .stream()
+                .filter(port -> port.fixedIps().containsValue(targetIp))
+                .findFirst()
+                .orElse(null);
+
+        if (openstackPort != null) {
+            log.debug("Found MAC from OpenStack for {}", targetIp.toString());
+            return openstackPort.macAddress();
+        } else {
+            return null;
+        }
+    }
+
+    /**
+     * Returns MAC address of a host with a given target IP address by asking to
+     * host service. It does not support overlapping IP.
+     *
+     * @param targetIp target ip
+     * @return mac address, or null if it fails to find the mac
+     */
+    private MacAddress getMacFromHostService(IpAddress targetIp) {
+        checkNotNull(targetIp);
+
+        Host host = hostService.getHostsByIp(targetIp)
+                .stream()
+                .findFirst()
+                .orElse(null);
+
+        if (host != null) {
+            log.debug("Found MAC from host service for {}", targetIp.toString());
+            return host.mac();
+        } else {
+            return null;
+        }
+    }
+}