The capability of a microchannel reactor for direct synthesis of dimethyl ether (DME) from biomass syngas was explored. The reactor was operated in conjunction with a hybrid catalyst system consisting of methanol synthesis and dehydration catalysts, and the influence of reaction parameters on syngas conversion was investigated. The activities of different dehydration catalysts were compared under DME synthesis conditions. Reaction temperature and pressure exhibited similar positive effects on DME formation. A catalytic stability test of the hybrid catalyst system was performed for 880 h, during which CO conversion only decreased from 88% to 81%. In the microchannel reactor, the catalyst deactivation rate appeared to be much slower than in a tubular fixed-bed reactor tested for comparison. Test results also indicated that the dehydration reaction rate and the water depletion rate via a water-gas-shift reaction should be compatible to achieve high selectivity to DME. Using the microchannel reactor, it was possible to achieve a space time yield almost 3 times higher than commercially demonstrated performance results, which highlights strong process intensification potential for commercial application.