The production of bio-DME (dimethylether) is very similar to that of biomethanol. Bio-DME can be produced directly from synthesis gas, which is still under development. However, in the chemical industry, DME is produced from pure methanol by means of a process called catalytic dehydration, which chemically separates the water from the methanol. This methanol can be produced from coal, natural gas, or biomass. Often the production of methanol and DME is combined in one process. Research on the application of DME as an automotive fuel has only started recently. In the past, DME derived from fossil fuels, was mainly used as a substitute propellant for chlorofluorocarbons (CFCs) in spray cans. Bio-DME is a suitable diesel engine fuel due to its low-self-ignition temperature and high cetane number. However, DME cannot be blended with fossil diesel and its volumetric energy content is much lower, approximately half that of diesel. Retrofitting diesel engines for the use of DME is relatively simple.

Although DME does not corrode metals, unlike bioethanol and biomethanol, it may affect certain kinds of plastics, elastomers and rubbers after some time. DME is gaseous at ambient temperature, but it is a liquid if the pressure is above 5 bar or the temperature is below -25° C. It is likely to be used as a liquid at 5-10 bar. Transport, storage and distribution of DME is similar to that of LPG. The main challenges for further development of bio-DME are similar to those of Fischer-Tropsch liquids and biomethanol, which have been discussed earlier in this section.