diff --git a/packages/web/src/components/layout/ChannelSidebar.tsx b/packages/web/src/components/layout/ChannelSidebar.tsx
index ef9c4e45..379f5682 100644
--- a/packages/web/src/components/layout/ChannelSidebar.tsx
+++ b/packages/web/src/components/layout/ChannelSidebar.tsx
@@ -18,6 +18,7 @@ import { parseFederatedUsername, isSelf } from '../../utils/identity';
 import { joinVoiceChannel, broadcastVoiceStatus, broadcastDeafenViaLiveKit } from '../../utils/voice';
 import { ContextMenu } from '../ui/ContextMenu';
 import { ConfirmDialog } from '../ui/ConfirmDialog';
+import { DmSearchBar } from './DmSearchBar';
 
 export function ChannelSidebar() {
   const spaces = useSpaceStore((s) => s.spaces);
@@ -399,9 +400,7 @@ export function ChannelSidebar() {
       <>
       <div className="w-60 md:w-full bg-surface-channel flex flex-col flex-shrink-0 select-none md:pl-[72px] border-r border-border-hard">
         <div className="h-14 px-[10px] flex items-center border-b border-border-hard z-10">
-          <button className="flex-1 min-h-8 bg-surface-base text-txt-tertiary text-[13px] font-medium py-[5px] px-2 rounded-[4px] text-left hover:bg-surface-base transition-colors">
-            Find or start a conversation
-          </button>
+          <DmSearchBar />
         </div>
         <div className="flex-1 overflow-y-auto pt-4 px-2 no-scrollbar" style={{ paddingBottom: floatingPanelHeight + 24 }}>
           <div
diff --git a/packages/web/src/components/layout/DmSearchBar.tsx b/packages/web/src/components/layout/DmSearchBar.tsx
new file mode 100644
index 00000000..b1a5d7e5
--- /dev/null
+++ b/packages/web/src/components/layout/DmSearchBar.tsx
@@ -0,0 +1,387 @@
+import React, { useState, useRef, useEffect, useMemo, useCallback } from 'react';
+import { createPortal } from 'react-dom';
+import { useNavigate } from 'react-router-dom';
+import type { User, DmChannel } from '@backspace/shared';
+import { Avatar } from '../ui/Avatar';
+import { useSpaceStore, getApiForOrigin, resolveUserOrigin } from '../../stores/spaceStore';
+import { useAuthStore } from '../../stores/authStore';
+import { useUIStore } from '../../stores/uiStore';
+import { api } from '../../api/client';
+import { isSelf, parseFederatedUsername } from '../../utils/identity';
+import { useFloatingPosition } from '../../hooks/useFloatingPosition';
+
+const MAX_RECENT = 8;
+const SEARCH_DEBOUNCE = 300;
+
+interface DmItem {
+  type: 'dm';
+  dm: DmChannel;
+  displayName: string;
+  otherMembers: DmChannel['members'];
+  isGroup: boolean;
+}
+
+interface UserItem {
+  type: 'user';
+  user: User;
+}
+
+type ResultItem = DmItem | UserItem;
+
+export function DmSearchBar() {
+  const [active, setActive] = useState(false);
+  const [query, setQuery] = useState('');
+  const [userResults, setUserResults] = useState<User[]>([]);
+  const [isSearching, setIsSearching] = useState(false);
+  const [error, setError] = useState('');
+  const [selectedIndex, setSelectedIndex] = useState(0);
+
+  const dmChannels = useSpaceStore((s) => s.dmChannels);
+  const addDmChannel = useSpaceStore((s) => s.addDmChannel);
+  const user = useAuthStore((s) => s.user);
+  const navigate = useNavigate();
+
+  const anchorRef = useRef<HTMLDivElement>(null);
+  const floatingRef = useRef<HTMLDivElement>(null);
+  const inputRef = useRef<HTMLInputElement>(null);
+  const selectedRef = useRef<HTMLDivElement>(null);
+  const searchTimer = useRef<ReturnType<typeof setTimeout>>();
+
+  const { style } = useFloatingPosition(anchorRef, floatingRef, {
+    placement: 'bottom',
+    offset: 4,
+    enabled: active,
+  });
+
+  // Build filtered DM items
+  const dmItems = useMemo((): DmItem[] => {
+    const q = query.toLowerCase().trim();
+    return dmChannels
+      .map((dm): DmItem | null => {
+        const otherMembers = dm.members.filter(m => !isSelf(m, user));
+        if (otherMembers.length === 0) return null;
+        const isGroup = dm.members.length > 2;
+        const displayName = isGroup
+          ? otherMembers.map(m => m.displayName ?? parseFederatedUsername(m.username).baseName).join(', ')
+          : otherMembers[0]?.displayName ?? otherMembers[0]?.username ?? '';
+        return { type: 'dm', dm, displayName, otherMembers, isGroup };
+      })
+      .filter((item): item is DmItem => {
+        if (!item) return false;
+        if (!q) return true;
+        // Match against display name or any member username
+        if (item.displayName.toLowerCase().includes(q)) return true;
+        return item.otherMembers.some(m =>
+          m.username.toLowerCase().includes(q) ||
+          (m.displayName?.toLowerCase().includes(q) ?? false)
+        );
+      })
+      .slice(0, MAX_RECENT);
+  }, [dmChannels, query, user]);
+
+  // De-duplicate user results against shown 1-on-1 DMs
+  const filteredUserResults = useMemo((): UserItem[] => {
+    const dmUserIds = new Set<string>();
+    for (const item of dmItems) {
+      if (!item.isGroup && item.otherMembers.length === 1) {
+        const m = item.otherMembers[0]!;
+        dmUserIds.add(m.homeUserId ?? m.id);
+      }
+    }
+    return userResults
+      .filter(u => {
+        if (isSelf(u, user)) return false;
+        const homeId = u.homeUserId ?? u.id;
+        return !dmUserIds.has(homeId);
+      })
+      .map(u => ({ type: 'user' as const, user: u }));
+  }, [userResults, dmItems, user]);
+
+  // Flat unified list
+  const allItems = useMemo((): ResultItem[] => {
+    return [...dmItems, ...filteredUserResults];
+  }, [dmItems, filteredUserResults]);
+
+  // Clamp selectedIndex when items change
+  useEffect(() => {
+    setSelectedIndex(prev => Math.min(prev, Math.max(0, allItems.length - 1)));
+  }, [allItems.length]);
+
+  // Scroll selected item into view
+  useEffect(() => {
+    selectedRef.current?.scrollIntoView({ block: 'nearest' });
+  }, [selectedIndex]);
+
+  // Debounced user search
+  useEffect(() => {
+    if (searchTimer.current) clearTimeout(searchTimer.current);
+    const trimmed = query.trim();
+    if (trimmed.length < 2) {
+      setUserResults([]);
+      setIsSearching(false);
+      return;
+    }
+    setIsSearching(true);
+    searchTimer.current = setTimeout(async () => {
+      try {
+        const users = await api.social.search(trimmed);
+        setUserResults(users);
+      } catch {
+        setUserResults([]);
+      } finally {
+        setIsSearching(false);
+      }
+    }, SEARCH_DEBOUNCE);
+    return () => { if (searchTimer.current) clearTimeout(searchTimer.current); };
+  }, [query]);
+
+  // Click outside handler
+  useEffect(() => {
+    if (!active) return;
+    const handleClick = (e: MouseEvent) => {
+      const anchor = anchorRef.current;
+      const floating = floatingRef.current;
+      if (anchor?.contains(e.target as Node)) return;
+      if (floating?.contains(e.target as Node)) return;
+      close();
+    };
+    document.addEventListener('mousedown', handleClick);
+    return () => document.removeEventListener('mousedown', handleClick);
+  }, [active]);
+
+  const open = useCallback(() => {
+    setActive(true);
+    setQuery('');
+    setUserResults([]);
+    setError('');
+    setSelectedIndex(0);
+    setTimeout(() => inputRef.current?.focus(), 0);
+  }, []);
+
+  const close = useCallback(() => {
+    setActive(false);
+    setQuery('');
+    setUserResults([]);
+    setError('');
+  }, []);
+
+  const selectItem = useCallback(async (item: ResultItem) => {
+    setError('');
+    if (item.type === 'dm') {
+      close();
+      useUIStore.getState().setShowDms(true);
+      navigate(`/channels/@me/${item.dm.id}`);
+    } else {
+      try {
+        const existing = useSpaceStore.getState().findExistingDmForUser(item.user);
+        if (existing) {
+          close();
+          useUIStore.getState().setShowDms(true);
+          navigate(`/channels/@me/${existing.dm.id}`);
+          return;
+        }
+        const origin = resolveUserOrigin(item.user);
+        const dmApi = getApiForOrigin(origin);
+        const channel = await dmApi.dm.create({ userId: item.user.id });
+        addDmChannel(channel, origin);
+        close();
+        useUIStore.getState().setShowDms(true);
+        navigate(`/channels/@me/${channel.id}`);
+      } catch (err) {
+        setError((err as Error).message || 'Failed to create DM');
+      }
+    }
+  }, [close, navigate, addDmChannel]);
+
+  const handleKeyDown = useCallback((e: React.KeyboardEvent) => {
+    if (e.key === 'Escape') {
+      e.preventDefault();
+      close();
+      return;
+    }
+    if (e.key === 'ArrowDown') {
+      e.preventDefault();
+      setSelectedIndex(prev => Math.min(prev + 1, allItems.length - 1));
+      return;
+    }
+    if (e.key === 'ArrowUp') {
+      e.preventDefault();
+      setSelectedIndex(prev => Math.max(prev - 1, 0));
+      return;
+    }
+    if (e.key === 'Enter') {
+      e.preventDefault();
+      const item = allItems[selectedIndex];
+      if (item) selectItem(item);
+    }
+  }, [close, allItems, selectedIndex, selectItem]);
+
+  // Compute dropdown width to match anchor
+  const [dropdownWidth, setDropdownWidth] = useState(0);
+  useEffect(() => {
+    if (!active || !anchorRef.current) return;
+    const update = () => {
+      const rect = anchorRef.current?.getBoundingClientRect();
+      if (rect) setDropdownWidth(rect.width);
+    };
+    update();
+    const ro = new ResizeObserver(update);
+    ro.observe(anchorRef.current);
+    return () => ro.disconnect();
+  }, [active]);
+
+  const showSections = allItems.length > 0 || isSearching || (query.trim().length >= 2 && !isSearching);
+
+  const dropdown = active ? createPortal(
+    <div
+      ref={floatingRef}
+      style={{ ...style, width: dropdownWidth > 0 ? dropdownWidth : undefined }}
+      className="animate-fade-in"
+    >
+      <div className="glass rounded-lg shadow-xl max-h-[360px] overflow-y-auto scrollbar-thin py-1">
+        {error && (
+          <div className="px-3 py-2 text-txt-danger text-[13px]">{error}</div>
+        )}
+
+        {allItems.length === 0 && !isSearching && query.trim().length === 0 && dmItems.length === 0 && (
+          <div className="px-3 py-4 text-center text-txt-tertiary text-[13px]">
+            Search for a user to start chatting
+          </div>
+        )}
+
+        {/* DM conversations section */}
+        {dmItems.length > 0 && (
+          <>
+            {query.trim().length >= 2 && (
+              <div className="px-3 pt-1.5 pb-1 text-[11px] font-bold text-txt-tertiary uppercase tracking-wider">
+                Conversations
+              </div>
+            )}
+            {dmItems.map((item, i) => {
+              const globalIndex = i;
+              const isSelected = globalIndex === selectedIndex;
+              return (
+                <div
+                  key={item.dm.id}
+                  ref={isSelected ? selectedRef : undefined}
+                  onClick={() => selectItem(item)}
+                  className={`flex items-center gap-2.5 px-2 py-1.5 mx-1 rounded cursor-pointer transition-colors ${
+                    isSelected ? 'bg-interactive-selected' : 'hover:bg-interactive-hover'
+                  }`}
+                >
+                  {item.isGroup ? (
+                    <div className="relative w-6 h-6 flex-shrink-0">
+                      {item.otherMembers.slice(0, 2).map((m, idx) => (
+                        <div
+                          key={m.id}
+                          className="absolute rounded-full overflow-hidden border-[1.5px] border-surface-channel"
+                          style={{
+                            width: 18, height: 18,
+                            left: idx * 8,
+                            top: idx * 4,
+                            zIndex: 2 - idx,
+                          }}
+                        >
+                          <Avatar src={m.avatar} name={m.displayName ?? parseFederatedUsername(m.username).baseName} size={18} userId={m.homeUserId ?? m.id} user={m} />
+                        </div>
+                      ))}
+                    </div>
+                  ) : (
+                    <Avatar
+                      src={item.otherMembers[0]?.avatar}
+                      name={item.otherMembers[0]?.displayName ?? parseFederatedUsername(item.otherMembers[0]?.username ?? '').baseName}
+                      size={24}
+                      status={item.otherMembers[0]?.status as 'online' | 'idle' | 'dnd' | 'offline' | undefined}
+                      userId={item.otherMembers[0]?.homeUserId ?? item.otherMembers[0]?.id}
+                      user={item.otherMembers[0]}
+                    />
+                  )}
+                  <span className="text-[14px] text-txt-primary truncate">{item.displayName}</span>
+                </div>
+              );
+            })}
+          </>
+        )}
+
+        {/* Users section */}
+        {(filteredUserResults.length > 0 || (isSearching && query.trim().length >= 2)) && (
+          <>
+            <div className="px-3 pt-1.5 pb-1 text-[11px] font-bold text-txt-tertiary uppercase tracking-wider">
+              Users
+            </div>
+            {isSearching && filteredUserResults.length === 0 && (
+              <div className="px-3 py-2 text-center text-txt-tertiary text-[13px]">Searching...</div>
+            )}
+            {filteredUserResults.map((item, i) => {
+              const globalIndex = dmItems.length + i;
+              const isSelected = globalIndex === selectedIndex;
+              return (
+                <div
+                  key={item.user.id}
+                  ref={isSelected ? selectedRef : undefined}
+                  onClick={() => selectItem(item)}
+                  className={`flex items-center gap-2.5 px-2 py-1.5 mx-1 rounded cursor-pointer transition-colors ${
+                    isSelected ? 'bg-interactive-selected' : 'hover:bg-interactive-hover'
+                  }`}
+                >
+                  <Avatar
+                    src={item.user.avatar}
+                    name={item.user.displayName ?? item.user.username}
+                    size={24}
+                    status={item.user.status as 'online' | 'idle' | 'dnd' | 'offline' | undefined}
+                    userId={item.user.homeUserId ?? item.user.id}
+                  />
+                  <div className="flex-1 min-w-0 flex items-center gap-1.5">
+                    <span className="text-[14px] text-txt-primary truncate">
+                      {item.user.displayName ?? item.user.username}
+                    </span>
+                    {item.user.displayName && (
+                      <span className="text-[12px] text-txt-tertiary truncate">
+                        @{item.user.username}
+                      </span>
+                    )}
+                  </div>
+                </div>
+              );
+            })}
+          </>
+        )}
+
+        {/* No results */}
+        {!isSearching && query.trim().length >= 2 && allItems.length === 0 && (
+          <div className="px-3 py-4 text-center text-txt-tertiary text-[13px]">No results found</div>
+        )}
+      </div>
+    </div>,
+    document.body,
+  ) : null;
+
+  return (
+    <div ref={anchorRef} className="flex-1 min-w-0">
+      {active ? (
+        <div className="flex-1 min-h-8 bg-surface-base rounded-[4px] flex items-center px-2 gap-1.5">
+          <svg width="14" height="14" viewBox="0 0 24 24" fill="currentColor" className="text-txt-tertiary flex-shrink-0">
+            <path d="M15.5 14h-.79l-.28-.27A6.471 6.471 0 0016 9.5 6.5 6.5 0 109.5 16c1.61 0 3.09-.59 4.23-1.57l.27.28v.79l5 4.99L20.49 19l-4.99-5zm-6 0C7.01 14 5 11.99 5 9.5S7.01 5 9.5 5 14 7.01 14 9.5 11.99 14 9.5 14z" />
+          </svg>
+          <input
+            ref={inputRef}
+            type="text"
+            value={query}
+            onChange={(e) => { setQuery(e.target.value); setSelectedIndex(0); }}
+            onKeyDown={handleKeyDown}
+            placeholder="Search..."
+            className="flex-1 min-w-0 bg-transparent text-txt-primary placeholder-txt-tertiary/60 text-[13px] font-medium outline-none py-[5px]"
+          />
+        </div>
+      ) : (
+        <button
+          onClick={open}
+          className="w-full min-h-8 bg-surface-base text-txt-tertiary text-[13px] font-medium py-[5px] px-2 rounded-[4px] text-left hover:bg-surface-base transition-colors"
+        >
+          Find or start a conversation
+        </button>
+      )}
+      {dropdown}
+    </div>
+  );
+}