This paper focused on the exergy analysis and optimization of a dehumidification desiccant wheel (DW) system. A two-dimensional unsteady state numerical model was developed for simulation of the heat and mass transfer phenomena in a representative channel of a DW matrix. The DW mathematical model was validated using a series of experimental data and parametric studies were conducted to investigate the effects of operating parameters on the DW system performance. Exergy parameters were also studied and adopted to predict the total inlet–outlet exergy and exergy destruction, as well as exergy effectivenesses. Furthermore, a new exergy effectiveness parameter was introduced based on the concept of dehumidification. Parametric studies were carried out to characterize the optimal performance of the overall system regarding exergy destruction and exergy dehumidification effectivenesses. The results demonstrate that electrical power consumption, regeneration heat, and heat and mass transfer between air and desiccant are the main sources of exergy destruction. The optimization calculation shows that at the lowest process air velocity (up = 0.2 m/s), lowest DW rotational speed (NDW = 4 Rph), highest regeneration air temperature (Ta,r,in = 140 °C), and moderate regeneration air velocity (ur = 1.7 m/s), minimum exergy destruction occurs. The optimal value of the parameters proves that, when exergy destruction effectiveness is selected as the objective function, the only regeneration air velocity is decision variable of optimization and operational limits impose on the other parameters.