Mechanical air dryers use refrigeration to reduce the pressure dew point of compressed air. The dryers lower the temperature close to the freezing point of water - about 35°F-39°F - which causes the moisture in the air to condense out. The condensed liquid is taken out of the system with separators.

There are three kinds of refrigeration dryers; they are the direct expansion types: cycling and non-cycling and the chiller type.

The direct expansion model uses two heat exchangers. The hot compressed air transfers its heat in the first exchanger (air-to-air) to cooled, dry air that is leaving the dryer system. This first exchanger cools the inlet air and reduces moisture content. The inlet air then travels to a second exchanger (refrigerant-to-air), where additional heat is transferred to a refrigerant and the design dew point is achieved.

Three types of direct-expansion dryers are available. At low loads, the hot gas bypass type routes some of the hot compressed refrigerant from the discharge side of the compressor back to the inlet side. This re-heating action prevents freezing when the airflow is low. The thermostatic-controlled type of direct-expansion dryer shuts down under similar low-load/low-flow conditions. A thermal storage mass is utilized to continue cooling the air during refrigeration unit shutdown.

In the chiller dryer, the heat exchange is a two-step process. The hot, humid air is cooled by chilled water in one heat exchanger; and the now-warmed water is re-chilled by refrigerant in another heat exchanger.

Refrigeration dryers are best suited for higher dew point requirements, indoor applications where ambient temperatures are below 35°F and where low dew points are not a requirement.