This study proposes a novel integrated polarisation and diversity smoothing (IPDS) algorithm to solve the direction estimation problem of coherent targets in bistatic multiple-input multiple-output (MIMO) radar with electromagnetic vector sensors (EVSs). The IPDS algorithm partitions the transmit and receive arrays into multiple subarrays based on the sensor elements and the spatial phase shift factors. Then the covariance matrices of the received signals from coherent targets associated with these subarrays are smoothened to restore the rank inadequacy of the reflection coefficient covariance matrix. After applying the IPDS algorithm, the direction of departure (DOD) and the direction of arrival (DOA) are estimated using the estimation of signal parameters via rotational invariance technique and the multiple signal classification methods. The effectiveness of the proposed algorithm in terms of decorrelation factor, estimation accuracy, precision and the spatial spectrum is evaluated through computer simulations. Cramér–Rao lower bound is derived for the bistatic MIMO radar with EVSs to substantiate the proposed algorithm. The simulation results are compared with the diversity smoothing and the polarisation smoothing algorithms available in literature. The results obtained by using the proposed algorithm were found to be impressive.