Building Identity Federation with SAML Azure AD

Overview

Identity federation enables users authenticated by one identity provider to access resources managed by another without maintaining separate credentials. This skill covers establishing SAML 2.0 federation between an organization's on-premises Active Directory (via AD FS or third-party IdP) and Microsoft Entra ID (formerly Azure AD), as well as configuring federated SSO for third-party SaaS applications. Federation eliminates password synchronization concerns and keeps authentication authority on-premises while extending SSO to cloud resources.

When to Use

• When deploying or configuring building identity federation with saml azure ad capabilities in your environment
• When establishing security controls aligned to compliance requirements
• When building or improving security architecture for this domain
• When conducting security assessments that require this implementation

Prerequisites

• On-premises Active Directory domain
• AD FS 2019+ or third-party SAML IdP (Okta, Ping, etc.)
• Microsoft Entra ID tenant (P1 or P2 license recommended)
• Azure AD Connect (if using hybrid identity with password hash sync as backup)
• Public TLS certificate for federation endpoint
• DNS records for federation service name

Core Concepts

Federation Models

SAML Federation Architecture

User → Cloud App (SP)
   │
   └── Redirect to Azure AD
          │
          ├── Azure AD checks federated domain
          │
          └── Redirect to on-premises AD FS
                 │
                 ├── AD FS authenticates against Active Directory
                 │
                 ├── AD FS issues SAML token
                 │
                 └── Token posted back to Azure AD
                        │
                        ├── Azure AD validates federation trust
                        │
                        ├── Azure AD issues its own token
                        │
                        └── User receives access token for cloud app

Federation Trust Components

Workflow

Step 1: Prepare AD FS Infrastructure

# Install AD FS role
Install-WindowsFeature ADFS-Federation -IncludeManagementTools

# Configure AD FS farm
Install-AdfsFarm `
    -CertificateThumbprint $certThumbprint `
    -FederationServiceDisplayName "Corp Federation Service" `
    -FederationServiceName "fs.corp.example.com" `
    -ServiceAccountCredential $gmsaCredential

# Verify AD FS is operational
Get-AdfsProperties | Select-Object HostName, Identifier, FederationPassiveAddress

Step 2: Configure Azure AD Federated Domain

# Install Microsoft Graph PowerShell module
Install-Module Microsoft.Graph -Scope CurrentUser

# Connect to Microsoft Graph
Connect-MgGraph -Scopes "Domain.ReadWrite.All"

# Convert managed domain to federated
# Using AD FS federation metadata URL
$domainId = "corp.example.com"
$federationConfig = @{
    issuerUri = "http://fs.corp.example.com/adfs/services/trust"
    metadataExchangeUri = "https://fs.corp.example.com/adfs/services/trust/mex"
    passiveSignInUri = "https://fs.corp.example.com/adfs/ls/"
    signOutUri = "https://fs.corp.example.com/adfs/ls/?wa=wsignout1.0"
    signingCertificate = $base64Cert
    preferredAuthenticationProtocol = "saml"
}

# Apply federation settings to domain
New-MgDomainFederationConfiguration -DomainId $domainId -BodyParameter $federationConfig

Step 3: Configure AD FS Claims Rules

# Add Relying Party Trust for Azure AD
Add-AdfsRelyingPartyTrust `
    -Name "Microsoft Office 365 Identity Platform" `

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