I was able to do this with Azure VMs (Windows Server 2012 R2).
It requires Azure AD Domain Services. If you're setting group-based permissions (e.g. for folder or RDP access) you need to use a security group (distribution lists and O365 groups, including built-in groups, will not work).
You may need to configure the DNS servers if they're not set up correctly.
You need to have a local VM admin-level account and an Azure AD admin-level account.
You just change the domain under my computer as you would when joining it to a regular domain (you will need to enter the Azure AD admin credentials).
Note: Don't forget that you also need to add RDP access for the users/groups before they will be able to RDP into the VM with their Azure Accounts.
You don't need a separate domain controller or DirSync.