The Air-breathing Microwave Plasma CAThode (AMPCAT) has been developed for air-breathing electric propulsion in very-low Earth orbit. In this study, the standalone AMPCAT plasma characteristics are analyzed by means of several diagnostic tools and operation on xenon is compared to a conventional hollow cathode. A transition of AMPCAT extracted current from a lower (<0.1 A) to higher-current (>0.5 A) mode, triggered by increasing the negative cathode bias voltage, is accompanied by a significant rise in internal electron density and external electron temperature. The AMPCAT is coupled with a cylindrical Hall thruster in the 100–300 W power-level running on 0.5–0.7 mg/s of xenon, and the thrust is directly measured for cathode operation with both xenon and air. Stable thruster operation is demonstrated for the AMPCAT running on both propellants. For xenon, the performance is compared to a hollow cathode, which reveals matching discharge current profiles but a significantly higher thrust for the AMPCAT at low discharge voltages, approximately two times higher at 200 V. Langmuir probe measurements highlight a 30–40 V lower plasma potential in the cathode vicinity for the AMPCAT with xenon compared to both the hollow cathode and AMPCAT with air. This indicates a significantly improved coupling of cathode electrons to the thruster discharge, yielding an increased degree of ionization. Faraday probe and Wien filter results show that a larger current utilization efficiency drives the observed performance difference at low discharge voltages, rather than a significant change in ion acceleration or plume divergence.