Direct synthesis of dimethyl carbonate (DMC) from CO2 is promising for CO2 utilization, however its efficiency remains far from industrial-scale implementation for lack of customized catalysts. Herein, a hydroxyl-functionalized ionic liquid (HFIL) was developed to enhance catalytic activity, and importantly, to facilitate IL recovery through spontaneous phase separation. A high DMC yield (6.5 gDMC·kgcat−1·h−1) over HFIL was achieved under mild conditions compared to non- hydroxyl IL. Self-diffusion coefficients characterization revealed intensified diffusion of CH3OH and HFIL, alongside reduced blockage of active sites after hydroxyl functionalization. Density functional theory calculations elucidated that cation polarization induced by hydroxyl group facilitated the synergistic activation of both substrates and monomethyl carbonate intermediate. The reaction mechanism was further verified through diffuse reflectance infrared Fourier transform spectroscopy and theoretical calculations. The self-separation behavior was demonstrated by molecular dynamics simulations. The deep insights into hydroxyl effects towards direct DMC synthesis provide a pioneering perspective for CO2 capture and utilization using functionalized ILs.