The possibility of using dimethyl ether (DME) as a fuel in direct oxidation polymer-electrolyte-membrane (PEM) fuel cells is investigated. A mechanism for DME electro-oxidation is proposed based on the results of half-cell experiments using cyclic voltammetry combined with gas-chromatographic (GC) analyses of a single direct DME fuel cell. It is shown that, as a consequence of this mechanism, there is an additional overpotential at the anode of a direct DME fuel cell which is related to the initial adsorption step on the catalyst surface. DME is typically not oxidized at the cathode of a PEM fuel cell. This minimizes unwanted effects of fuel crossover, leading to improved fuel-cell efficiencies compared to direct methanol fuel cells, especially at low-to-medium current densities.