How to Automate Server Setup with cloud-init: Never Manually Configure a VPS Again

Every time you spin up a new VPS, you repeat the same steps: create a user, add your SSH key, install Docker, configure the firewall, set the hostname. This takes 20 minutes and is error-prone when you are doing it at 11 PM during an incident. cloud-init automates all of this on first boot. Your server arrives already configured, secured, and ready to deploy applications. Here is how to use it.

What cloud-init Is

cloud-init is the industry standard for cross-platform cloud instance initialisation. It ships by default on Ubuntu and most cloud images. When a cloud instance boots for the first time, cloud-init reads a configuration file (called user-data) and executes the instructions: install packages, create users, write files, run commands, configure networking. By the time you SSH in, the server is already set up exactly how you want it.

cloud-init works on DigitalOcean, Hetzner, AWS, Google Cloud, Azure, and virtually every other cloud provider. It also works locally with QEMU, LXD, Multipass, and Libvirt for testing.

The cloud-config YAML Format

cloud-init configuration is written in YAML with the header #cloud-config on the first line. Here is a production-ready configuration that prepares a server for Docker self-hosting:

#cloud-config
hostname: vps1-server
fqdn: vps1-server.yourdomain.com
timezone: Asia/Brunei

users:
  - name: deploy
    groups: sudo, docker
    shell: /bin/bash
    ssh_authorized_keys:
      - ssh-ed25519 AAAAC3... your_public_key_here
    sudo: ALL=(ALL) ALL
    passwd: "$YOURPASSWORDHASH"  # generate with: mkpasswd --method=sha-512

packages:
  - docker.io
  - docker-compose-v2
  - ufw
  - unattended-upgrades
  - curl
  - git
  - htop
  - vim

package_update: true
package_upgrade: true
disable_root: true
ssh_pwauth: false

write_files:
  - path: /etc/docker/daemon.json
    content: |
      {
        "log-driver": "json-file",
        "log-opts": {
          "max-size": "10m",
          "max-file": "3"
        }
      }
    owner: root:root
    permissions: '0644'

runcmd:
  - ufw allow 22/tcp
  - ufw allow 80/tcp
  - ufw allow 443/tcp
  - ufw --force enable
  - systemctl enable docker
  - systemctl start docker

final_message: "Server setup complete. Docker installed, firewall active. Root login disabled, SSH key-only auth enabled." key-only auth enabled. Root login and password authentication disabled."

Step-by-Step Breakdown

hostname and timezone

Sets the server's identity. Use a fully qualified domain name if you have one. The timezone ensures logs and cron jobs run at the correct local time. For Brunei, that is Asia/Brunei.

users

Creates a non-root user named deploy, adds it to the sudo and docker groups, and installs your SSH public key. The sudo line grants sudo access. After first boot, you SSH in as deploy@server-ip using your SSH key. No root login. No password login. No shared credentials.

packages

Installs Docker, Docker Compose v2, UFW firewall, unattended-upgrades for automatic security patches, and essential tools. The package_update and package_upgrade directives run apt update and apt upgrade before installing, ensuring you get the latest versions.

write_files

Creates Docker's daemon.json to configure log rotation. Without this, Docker container logs grow indefinitely and fill your disk. The configuration above limits each container to 10MB per log file with a maximum of 3 files, totalling 30MB per container. For 20 containers, that is 600MB maximum for all logs combined.

runcmd

Runs shell commands during the final boot stage. These commands enable the firewall (allowing only SSH, HTTP, and HTTPS), start Docker, and enable the firewall. The disable_root and ssh_pwauth directives (configured above) disable root login and SSH password authentication. After cloud-init finishes, root login is disabled, and the server accepts only SSH key authentication.

How to Use cloud-init

DigitalOcean

When creating a Droplet, expand the Advanced Options section. Check the User data box and paste your cloud-config YAML. DigitalOcean runs cloud-init automatically during the Droplet's first boot.

Hetzner Cloud

When creating a server, scroll to Cloud config. Paste your YAML. The cloud-init package is pre-installed on Ubuntu images. Hetzner also supports cloud-init via their API and CLI.

Testing Locally with Multipass

multipass launch --name test --cloud-init cloud-config.yaml

Multipass is a lightweight VM manager for Linux, macOS, and Windows. It is the fastest way to test cloud-init configurations without spinning up a paid cloud instance.

Debugging cloud-init

If something does not work, check the logs:

# Check cloud-init status
cloud-init status

# View the full log
sudo cat /var/log/cloud-init-output.log

# View cloud-init's own log
sudo cat /var/log/cloud-init.log

# Re-run cloud-init (for testing after fixing config)
sudo cloud-init clean --logs
sudo cloud-init init --local
sudo cloud-init init
sudo cloud-init modules --mode=config
sudo cloud-init modules --mode=final

The status command tells you whether cloud-init completed successfully. The output log shows you exactly what happened during each stage. If a package failed to install or a command returned an error, it appears here.

Note on root access: The cloud-config above disables root login (disable_root: true) and password authentication (ssh_pwauth: false). This means you can only SSH in as the deploy user with your key. If you need to use the root account for any reason, SSH in as deploy first, then switch to root:

sudo su -
passwd  # set a root password if needed

The deploy user has sudo access, so you can run any administrator command with sudo without ever logging in as root directly.

Why This Matters for Self-Hosting

Self-hosting means you provision servers more often than most businesses. Every new application might need a new VPS. Every disaster recovery drill requires rebuilding from scratch. Every client deployment starts with a fresh server. cloud-init turns server provisioning from a 20-minute manual checklist into a one-time configuration that runs automatically every time you deploy.

Combine cloud-init with Docker Compose stacks in /opt/stacks, and you have a fully automated deployment pipeline: cloud-init prepares the server (Docker, firewall, users, SSH), and Dockge or docker compose pulls and starts your applications. A new server goes from nothing to fully operational in under five minutes, with zero manual steps after pasting the cloud-config.

VPS1 uses cloud-init to provision every managed server. We maintain cloud-config templates for each client's stack. When you need a new server, we deploy it in minutes with your exact configuration. No manual setup. No configuration drift. No forgotten steps at 11 PM.