diff --git a/CHANGELOG.md b/CHANGELOG.md
index c4f8b6088..2c72f7c5c 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -13,6 +13,31 @@
 - `Webpacker::Compiler.fresh?` and `Webpacker::Compiler.stale?` answer the question of whether compilation is needed.
   The old `Webpacker::Compiler.compile?` predicate is deprecated.
 
+- Dev server config class that exposes config options through singleton.
+
+  ```rb
+  Webpacker.dev_server.running?
+  ```
+
+- Rack middleware proxies webpacker requests to dev server so we can always serve from same-origin and the lookup works out of the box - no more paths prefixing
+
+### Breaking changes
+
+**Note:** requires running `bundle exec rails webpacker:install` and update webpacker.yml
+
+- Move dev-server config options under defaults so it's transparently available in all environments
+
+
+### Removed
+
+- Host info from manifest.json, now looks like this:
+
+  ```json
+  {
+    "hello_react.js": "/packs/hello_react.js"
+  }
+  ```
+
 ### Fixed
 
 - Update `webpack-dev-server.tt` to respect RAILS_ENV and NODE_ENV values [#502](https://github.com/rails/webpacker/issues/502)
diff --git a/Gemfile b/Gemfile
index 32d7ff145..ca5add6b9 100644
--- a/Gemfile
+++ b/Gemfile
@@ -5,6 +5,7 @@ gemspec
 gem "rails"
 gem "rake", ">= 11.1"
 gem "rubocop", ">= 0.49", require: false
+gem "rack-proxy", require: false
 
 group :test do
   gem "minitest", "~> 5.0"
diff --git a/Gemfile.lock b/Gemfile.lock
index 32e6f8e5f..fd2ecc4bf 100644
--- a/Gemfile.lock
+++ b/Gemfile.lock
@@ -3,6 +3,7 @@ PATH
   specs:
     webpacker (2.0)
       activesupport (>= 4.2)
+      rack-proxy (>= 0.6.1)
       railties (>= 4.2)
 
 GEM
@@ -72,6 +73,8 @@ GEM
       ast (~> 2.2)
     powerpack (0.1.1)
     rack (2.0.1)
+    rack-proxy (0.6.1)
+      rack
     rack-test (0.6.3)
       rack (>= 1.0)
     rails (5.0.1)
@@ -131,6 +134,7 @@ DEPENDENCIES
   bundler (~> 1.12)
   byebug
   minitest (~> 5.0)
+  rack-proxy
   rails
   rake (>= 11.1)
   rubocop (>= 0.49)
diff --git a/README.md b/README.md
index 2ba8ed34f..d9e23e69b 100644
--- a/README.md
+++ b/README.md
@@ -246,40 +246,13 @@ happens when you refer to any of the pack assets using the Webpacker helper meth
 That means you don't have to run any separate process. Compilation errors are logged
 to the standard Rails log.
 
-If you want to use live code reloading, you'll need to run `./bin/webpack-dev-server`
+If you want to use live code reloading, or you have enough JavaScript that on-demand compilation is too slow, you'll need to run `./bin/webpack-dev-server`
 in a separate terminal from `./bin/rails server`. This process will watch for changes
 in the `app/javascript/packs/*.js` files and automatically reload the browser to match.
 
-Note: The dev server serves pack files from `http://localhost:8080/` by default, which
-is a different origin than your application server. Therefore it's not compatible with
-things like Service Workers, that requires you to serve from the same origin.
-
-If you'd rather not have to run the two processes separately by hand, you can use [Foreman](https://ddollar.github.io/foreman):
-
-```bash
-gem install foreman
-```
-
-```yml
-# Procfile
-web: bundle exec rails s
-webpacker: ./bin/webpack-dev-server
-```
-
-```bash
-foreman start
-```
-
-By default, `webpack-dev-server` listens on `0.0.0.0` that means listening
-on all IP addresses available on your system: LAN IP address, localhost, 127.0.0.1 etc. 
-However, we use `localhost` as default hostname for serving assets in browser
-and if you want to change that, for example on cloud9 you can do so
-by changing host set in `config/webpacker.yml`.
-
-```bash
-dev_server:
-  host: example.com
-```
+Once you start this development server, Webpacker will automatically start proxying all
+webpack asset requests to this server. When you stop the server, it'll revert to 
+on-demand compilation again. 
 
 You can also pass CLI options supported by [webpack-dev-server](https://webpack.js.org/configuration/dev-server/). Please note that inline options will always take
 precedence over the ones already set in the configuration file.
diff --git a/lib/install/bin/webpack-dev-server.tt b/lib/install/bin/webpack-dev-server.tt
index 00bbd4bde..ac15988f2 100644
--- a/lib/install/bin/webpack-dev-server.tt
+++ b/lib/install/bin/webpack-dev-server.tt
@@ -28,8 +28,7 @@ begin
 
   HOSTNAME        = args('--host') || dev_server["host"]
   PORT            = args('--port') || dev_server["port"]
-  HTTPS           = ARGV.include?('--https') || dev_server["https"]
-  DEV_SERVER_ADDR = "http#{"s" if HTTPS}://#{HOSTNAME}:#{PORT}"
+  DEV_SERVER_ADDR = "http://#{HOSTNAME}:#{PORT}"
 
 rescue Errno::ENOENT, NoMethodError
   $stdout.puts "Webpack dev_server configuration not found in #{CONFIG_FILE}."
diff --git a/lib/install/config/loaders/core/assets.js b/lib/install/config/loaders/core/assets.js
index 621cec109..0b3525e65 100644
--- a/lib/install/config/loaders/core/assets.js
+++ b/lib/install/config/loaders/core/assets.js
@@ -5,7 +5,8 @@ module.exports = {
   use: [{
     loader: 'file-loader',
     options: {
-      publicPath: output.publicPath,
+      // Set publicPath with ASSET_HOST env if available so internal assets can use CDN
+      publicPath: output.publicPathWithHost,
       name: env.NODE_ENV === 'production' ? '[name]-[hash].[ext]' : '[name].[ext]'
     }
   }]
diff --git a/lib/install/config/webpack/configuration.js b/lib/install/config/webpack/configuration.js
index 2a37e63d2..d48074342 100644
--- a/lib/install/config/webpack/configuration.js
+++ b/lib/install/config/webpack/configuration.js
@@ -24,7 +24,8 @@ function formatPublicPath(host = '', path = '') {
 
 const output = {
   path: resolve('public', settings.public_output_path),
-  publicPath: formatPublicPath(env.ASSET_HOST, settings.public_output_path)
+  publicPath: `/${settings.public_output_path}/`.replace(/([^:]\/)\/+/g, '$1'),
+  publicPathWithHost: formatPublicPath(env.ASSET_HOST, settings.public_output_path)
 }
 
 let resolvedModules = [
diff --git a/lib/install/config/webpack/development.js b/lib/install/config/webpack/development.js
index 7247e31aa..6dfb717e8 100644
--- a/lib/install/config/webpack/development.js
+++ b/lib/install/config/webpack/development.js
@@ -13,7 +13,6 @@ module.exports = merge(sharedConfig, {
 
   devServer: {
     clientLogLevel: 'none',
-    https: settings.dev_server.https,
     host: settings.dev_server.host,
     port: settings.dev_server.port,
     contentBase: output.path,
diff --git a/lib/install/config/webpacker.yml b/lib/install/config/webpacker.yml
index 8fcb01506..521ef0bd4 100644
--- a/lib/install/config/webpacker.yml
+++ b/lib/install/config/webpacker.yml
@@ -10,6 +10,11 @@ default: &default
   # ['app/assets', 'engine/foo/app/assets']
   resolved_paths: []
 
+  # webpack-dev-server configuration
+  dev_server: &dev_server
+    host: localhost
+    port: 3035
+
   extensions:
     - .coffee
     - .erb
@@ -29,10 +34,6 @@ default: &default
 development:
   <<: *default
   compile: true
-  dev_server:
-    host: localhost
-    port: 8080
-    https: false
 
 test:
   <<: *default
diff --git a/lib/webpacker.rb b/lib/webpacker.rb
index db2430047..0b6544ebc 100644
--- a/lib/webpacker.rb
+++ b/lib/webpacker.rb
@@ -14,7 +14,7 @@ def instance
   end
 
   delegate :logger, :logger=, :env, to: :instance
-  delegate :config, :compiler, :manifest, :commands, to: :instance
+  delegate :config, :compiler, :manifest, :commands, :dev_server, to: :instance
   delegate :bootstrap, :clobber, :compile, to: :commands
 end
 
@@ -23,5 +23,6 @@ def instance
 require "webpacker/manifest"
 require "webpacker/compiler"
 require "webpacker/commands"
+require "webpacker/dev_server"
 
 require "webpacker/railtie" if defined?(Rails)
diff --git a/lib/webpacker/configuration.rb b/lib/webpacker/configuration.rb
index f78504db8..37815ba6a 100644
--- a/lib/webpacker/configuration.rb
+++ b/lib/webpacker/configuration.rb
@@ -9,6 +9,14 @@ def refresh
     @data = load
   end
 
+  def dev_server
+    fetch(:dev_server)
+  end
+
+  def compile?
+    fetch(:compile)
+  end
+
   def source_path
     root_path.join(fetch(:source_path))
   end
@@ -33,10 +41,6 @@ def cache_path
     root_path.join(fetch(:cache_path))
   end
 
-  def compile?
-    fetch(:compile)
-  end
-
   private
     def fetch(key)
       data.fetch(key, defaults[key])
diff --git a/lib/webpacker/dev_server.rb b/lib/webpacker/dev_server.rb
new file mode 100644
index 000000000..bac89071f
--- /dev/null
+++ b/lib/webpacker/dev_server.rb
@@ -0,0 +1,35 @@
+class Webpacker::DevServer
+  delegate :config, to: :@webpacker
+
+  def initialize(webpacker)
+    @webpacker = webpacker
+  end
+
+  def running?
+    Socket.tcp(host, port, connect_timeout: 1).close
+    true
+  rescue Errno::ECONNREFUSED, NoMethodError
+    false
+  end
+
+  def host
+    fetch(:host)
+  end
+
+  def port
+    fetch(:port)
+  end
+
+  def host_with_port
+    "#{host}:#{port}"
+  end
+
+  private
+    def fetch(key)
+      config.dev_server.fetch(key, defaults[key])
+    end
+
+    def defaults
+      config.send(:defaults)[:dev_server]
+    end
+end
diff --git a/lib/webpacker/dev_server_proxy.rb b/lib/webpacker/dev_server_proxy.rb
new file mode 100644
index 000000000..ccbe33b55
--- /dev/null
+++ b/lib/webpacker/dev_server_proxy.rb
@@ -0,0 +1,23 @@
+require "rack/proxy"
+
+class Webpacker::DevServerProxy < Rack::Proxy
+  def rewrite_response(response)
+    status, headers, body = response
+    headers.delete "transfer-encoding"
+    response
+  end
+
+  def perform_request(env)
+    if env["PATH_INFO"] =~ /#{public_output_uri_path}/ && Webpacker.dev_server.running?
+      env["HTTP_HOST"] = Webpacker.dev_server.host_with_port
+      super(env)
+    else
+      @app.call(env)
+    end
+  end
+
+  private
+    def public_output_uri_path
+      Webpacker.config.public_output_path.relative_path_from(Webpacker.config.public_path)
+    end
+end
diff --git a/lib/webpacker/instance.rb b/lib/webpacker/instance.rb
index 28648e825..0775f3b58 100644
--- a/lib/webpacker/instance.rb
+++ b/lib/webpacker/instance.rb
@@ -21,6 +21,10 @@ def compiler
     @compiler ||= Webpacker::Compiler.new self
   end
 
+  def dev_server
+    @dev_server ||= Webpacker::DevServer.new self
+  end
+
   def manifest
     @manifest ||= Webpacker::Manifest.new self
   end
diff --git a/lib/webpacker/manifest.rb b/lib/webpacker/manifest.rb
index 6628325c6..11ef101d7 100644
--- a/lib/webpacker/manifest.rb
+++ b/lib/webpacker/manifest.rb
@@ -12,7 +12,7 @@
 class Webpacker::Manifest
   class MissingEntryError < StandardError; end
 
-  delegate :config, :compiler, :env, to: :@webpacker
+  delegate :config, :compiler, :env, :dev_server, to: :@webpacker
 
   def initialize(webpacker)
     @webpacker = webpacker
@@ -23,13 +23,17 @@ def refresh
   end
 
   def lookup(name)
-    compile
+    compile if compiling?
     find name
   end
 
   private
+    def compiling?
+      config.compile? && !dev_server.running?
+    end
+
     def compile
-      Webpacker.logger.tagged("Webpacker") { compiler.compile } if config.compile?
+      Webpacker.logger.tagged("Webpacker") { compiler.compile }
     end
 
     def find(name)
diff --git a/lib/webpacker/railtie.rb b/lib/webpacker/railtie.rb
index 11c54773b..c88967778 100644
--- a/lib/webpacker/railtie.rb
+++ b/lib/webpacker/railtie.rb
@@ -1,8 +1,17 @@
 require "rails/railtie"
 
 require "webpacker/helper"
+require "webpacker/dev_server_proxy"
 
 class Webpacker::Engine < ::Rails::Engine
+  initializer "webpacker.proxy" do |app|
+    if Rails.env.development?
+      app.middleware.insert_before 0,
+        Rails::VERSION::MAJOR >= 5 ?
+          Webpacker::DevServerProxy : "Webpacker::DevServerProxy"
+    end
+  end
+
   initializer "webpacker.helper" do |app|
     ActiveSupport.on_load :action_controller do
       ActionController::Base.helper Webpacker::Helper
diff --git a/test/dev_server_test.rb b/test/dev_server_test.rb
new file mode 100644
index 000000000..f0b5bce36
--- /dev/null
+++ b/test/dev_server_test.rb
@@ -0,0 +1,11 @@
+require "webpacker_test_helper"
+
+class DevServerTest < Minitest::Test
+  def test_host
+    assert_equal "localhost", Webpacker.dev_server.host
+  end
+
+  def test_port
+    assert_equal Webpacker.dev_server.port, 3035
+  end
+end
diff --git a/webpacker.gemspec b/webpacker.gemspec
index b4c97b96a..05c9d1543 100644
--- a/webpacker.gemspec
+++ b/webpacker.gemspec
@@ -14,6 +14,7 @@ Gem::Specification.new do |s|
 
   s.add_dependency "activesupport", ">= 4.2"
   s.add_dependency "railties",      ">= 4.2"
+  s.add_dependency "rack-proxy",    ">= 0.6.1"
 
   s.add_development_dependency "bundler", "~> 1.12"