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I'm flying to Germany (Dresden) with a layover in Munich or Frankfurt. Both layovers are within the same terminal, same day (<24 hrs), same airline (LH). Where should I cross the Schengen border? Rule of thumb is "cross the border at the first airport you fly in", but what if the layover is within the international zone of the same country? Also "landing" (getting out of international zone) takes time and I wouldn't be able to do it within 1.5 hrs layover. Can I "land" in Dresden, or is it mandatory to land in Munich/Frankfurt? If so, do I have to claim my luggage during layover? I'm getting one-entry visa (business trip).

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You will not have a choice about where you encounter passport control. Follow the flights to your gate; you will go through passport control if need be, and you won't otherwise. The basic principle is that everyone on the plane is either inside the Schengen area or outside of it, and the airport is constructed so that you be directed to passport control, or not, accordingly.

Your flight from Frankfurt or Munich to Dresden will under almost all circumstances be an internal Schengen flight. The only exception to this would be an itinerary where the plane taking you from the transfer airport to Dresden had arrived from outside the Schengen zone and is continuing to Dresden with some of its passengers from the first leg. In that case, the domestic leg is treated as an external flight.

Even if your domestic flight were somehow an external flight, if you enter the Schengen area after you leave your arrival flight, you'd need to leave it before boarding, so you can re-enter it at your destination. This is not allowed for those who hold a single-entry visa, of course.

Many sets of gates in European airports are built with multiple levels, so the terminal can serve both internal and external flights; if the flight is internal, the doors are opened for the level serving Schengen flights, and if it is external, the doors are opened for the level serving non-Schengen flights. To get from one level to the other, of course, you have to go through passport control. The fact that your second flight leaves from the same terminal where your first flight arrives, therefore, does not imply that the second flight is a non-Schengen flight.

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    +1 and I'd like to add that immigration in FRA and MUC is a very efficient process and OP is unlikely to waste much time on this. – mts Apr 4 '17 at 7:50

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