This study experimentally investigates a novel hybrid system integrating thermoelectric generators (TEGs) with direct contact membrane distillation (DCMD) for simultaneous low-grade heat recovery, electricity generation, and water desalination. Commercial TEG modules were sandwiched between heat spreaders to transfer thermal energy from a source (approx. 140°C) to a cooling sink, driving saline water evaporation through a hydrophobic membrane. A validated mathematical model showed strong agreement with experimental results. The system achieved freshwater mass fluxes of 8–9.5 kg/m²/h and electrical power outputs density of 25–35 W/m². Increasing heat input (450–700 W) significantly enhanced freshwater production and electrical output, improving the gain output ratio (GOR) and reducing specific energy consumption (SEC). While higher feed salinity (up to 35,000 ppm) measurably declined mass flux and thermal efficiency, thermoelectric generation and thermal resistance remained largely unaffected. Energy and exergy efficiencies showed moderate sensitivity to operating conditions, while the Water–Electrical Energy Cogeneration Index (WEeCI) increased at high salinity, highlighting the robust contribution of electricity generation. These results demonstrate the potential of the TEG–DCMD system for sustainable co-generation of water and power from industrial waste heat or renewable thermal sources.