Dynamic application instance discovery and state management within a distributed system. A distributed system may implement application instances configured to perform one or more application functions within the distributed system, and discovery and failure detection daemon (DFDD) instances, each configured to store an indication of a respective operational state of each member of a respective group of the number of application instances. Each of the DFDD instances may repeatedly execute a gossip-based synchronization protocol with another one of the DFDD instances, where execution of the protocol between DFDD instances includes reconciling differences among membership of the respective groups of application instances. A new application instance may be configured to notify a particular DFDD instance of its availability to perform an application function. The particular DFDD instance may be configured to propagate the new instance's availability to other DFDD instances via execution of the synchronization protocol, without intervention on the part of the new application instance.