Abstract This work aimed to evaluate the environmental performance of single-step dimethyl ether (DME) production system through CO2-enhanced gasification of gumwood. The proposed CO2-enhanced gasification based bio-DME production process was compared systematically with the conventional approach in terms of life cycle assessment (LCA) impacts by using SimaPro software. Overall, the LCA results revealed that bio-DME fuel produced from CO2-enhanced process significantly reduced the burden on climate change, toxicity and eco-toxicity by at least 20%. This decrement was mostly attributed to low feedstock consumption, high-energy recovery and CO2 utilization in the CO2-enhanced process. Over 53% contribution in all impact categories were contributed by the gasifier unit, mainly due to its high energy intensity (over 60% of the total energy requirement). Moreover, the effect of replacing diesel by bio-DME or diesel/DME blend as an automotive fuel was assessed in this study. The scenario of using pure DME resulted on significant reductions of greenhouse gas (GHG) emissions, by 72%, and of its impact on both human health and ecosystem (by 55% and 68%, respectively). The reduction of GHG emissions were caused by the carbon neutrality of bio-DME. Utilization of DME also limited the emissions of carcinogenic particulate such as diesel soot and therefore, decreased the toxicity of traffic emissions. The second scenario was to utilize DME15 (15% DME by wt in diesel) as an automotive fuel. However, only minor decreases, up to 7%, of the environmental impact were observed for DME15 compared to those estimated for pure diesel. Thus, the present study demonstrated that the CO2-enhanced process could greatly reduce GHG emission and environmental burden of DME production compared to the conventional method. Furthermore, bio-DME utilization as fuel for automotive applications can significantly decrease the hazard caused by traffic emissions.