Minimal example

Machine A and B, where B uses mDNS with domain name b.local and set ssh service at port 2222. A and B does not turn on firewall.

In machine A's nginx.conf:

stream {
    upstream b-ssh {
        server  b.local:2222;
    }
    server {
        listen      2222;
        listen      [::]:2222;
        proxy_pass  b-ssh;
    }
}

When using nginx -t to test this configuration on machine A, error occurred:

[emerg] host not found in upstream "b.local:2222"

However, in machine A, using ssh -p 2222 b.local works normally (-4 or -6 is also tested)

Possibly useful infos

In my real-world example, machine A is a Windows 11 which disables all firewalls; machine B is WSL2 ubuntu 21.10 inside machine A which uses avahi-daemon mDNS service.

In side machine A's nginx.conf, I also set an HTTP proxy pass:

http {
    server {
        listen  8929;
        listen  [::]:8929;
        location / {
            proxy_pass  http://b.local:8929;
        }
    }
}

and this works well even though this uses mDNS domain name.

If I replace mDNS domain name with its real IP in upstream server, the SSH proxy works.

Install libnss-mdns and make sure there's an entry for mdns in /etc/nsswitch.conf:

hosts:          files mdns [NOTFOUND=return] dns

You can test mdns resolution with getent:

getent hosts b