Efficient power generation in pulp mills by way of biomass gasification has recently gained much attention. Gasification of biomass also opens up the possibility for biomass-based production of transportation fuels such as methanol and dimethyl ether. This study examines a proposed system for combined production of electricity and dimethyl ether from the synthesis gas generated during gasification of biomass in connection with a pulp mill. In the system studied, gasification of waste wood from the mill is integrated with a combined cycle for power production, as well as with the fuel synthesis. Hence, this combination makes good use of the gasifier since the synthesis gas can be used to generate excess electricity during the winter when electricity prices are high, whereas it can be used to produce transportation fuels at other times. Through performance modeling, a number of system configurations are compared with respect to the yields in power and dimethyl ether. The study shows that, by using surplus waste wood from a pulp mill producing 1000 tonne pulp/day, it is possible to generate fuel grade dimethyl ether to replace over 20000 liters of diesel fuel per day while maintaining electricity self-sufficiency. In addition, using the waste wood in an integrated gasification combined cycle results in 35 % higher power efficiency as compared to conventional techniques employing a bark-fired boiler and steam turbine.