↓Skip to main content

How Managed Identities Work in Azure

Table of Contents

Introduction #

One of the most useful Azure security features is managed identity.

It solves a very common problem: an application or automation task needs to authenticate to another Azure service, but storing credentials in code, configuration files, or pipeline variables is risky.

Managed identities reduce that problem by letting Azure handle the identity lifecycle for you.

What a Managed Identity Is #

A managed identity is an identity in Microsoft Entra ID that is tied to an Azure resource.

That resource can be something like:

  • A virtual machine
  • An App Service
  • An Azure Function
  • A container-based workload

Instead of storing a username, password, client secret, or certificate yourself, the workload can request a token from Azure and use that token to access permitted resources.

Why It Matters #

Without managed identity, teams often end up with:

  • Hardcoded secrets
  • Expiring credentials in application settings
  • Secret rotation work that gets delayed
  • Broad access because fine-grained handling is difficult

Managed identities improve security by removing much of that secret handling burden.

System-Assigned vs User-Assigned #

Azure supports two main types.

System-assigned managed identity #

This identity is created directly on a resource and belongs to that resource only.

If the resource is deleted, the identity is deleted too.

This is useful when:

  • The identity should exist only for that workload
  • You want a simple one-to-one relationship

User-assigned managed identity #

This identity is created as a separate Azure resource and can be attached to multiple workloads.

This is useful when:

  • Several workloads need the same identity
  • You want identity lifecycle managed separately from the compute resource

How the Authentication Flow Works #

At a high level, the flow is:

  1. The workload asks Azure for an access token.
  2. Azure verifies the managed identity attached to the resource.
  3. Azure issues a token for the target service.
  4. The workload uses that token to call the service.

The important point is that the application does not need to store its own long-lived credential to make that happen.

Authorization Still Matters #

Managed identity gives the workload an identity, but it does not automatically grant useful permissions.

You still need to assign the right Azure RBAC role or service-specific access.

For example, a managed identity may need:

  • Reader on a resource group
  • Key Vault Secrets User on a vault
  • Storage Blob Data Reader on a storage account

Identity answers who the workload is. Authorization answers what it can do.

A Good Real-World Example #

Imagine an App Service that needs to read a secret from Azure Key Vault.

Without managed identity, you might store a client secret somewhere and use that to authenticate. With managed identity:

  • The App Service gets its identity from Azure
  • The identity receives permission on the Key Vault
  • The application requests a token and reads the secret securely

That is cleaner and usually safer than managing a separate secret for the application itself.

Common Design Mistakes #

Some common mistakes include:

  • Giving a managed identity overly broad permissions
  • Forgetting that the identity still needs RBAC assignment
  • Reusing one user-assigned identity too widely across unrelated workloads

The feature is powerful, but least privilege still matters.

Conclusion #

Managed identities help Azure workloads authenticate without storing traditional credentials.

That reduces operational friction and lowers secret-management risk. Once you understand the identity-plus-permissions model, they become one of the most practical security features in Azure.