We present a novel method for the directed evolution of polypeptides, which combines in vitro compartmentalization and covalent DNA display. A library of linear DNA fragments is co-packaged with an in vitro transcription/translation mixture in the compartments of a water-in-oil emulsion. Experimental conditions are adjusted so that, in most cases, one compartment contains one DNA molecule. The DNA fragments encode fusion proteins containing a DNA-methyltransferase (M.Hae III), which can form a covalent bond with a 5-fluorodeoxycytidine base at the extremity of the DNA fragment. The resulting library of DNA-protein fusions is extracted from the emulsion and DNA molecules displaying a protein with desired binding properties are selected from the pool of DNA-protein fusions by affinity panning on target antigens. We applied this methodology in model selection experiments, using specific ligands for the capture of peptides and globular proteins bound to DNA. We observed enrichment factors >1000-fold for selections performed in separate emulsions and up to 150-fold for selections performed using mixtures of DNA molecules. M.Hae III could be fused to small globular proteins (such as calmodulin and fibronectin domains), which are ideally suited for the generation of combinatorial libraries and for the isolation of novel binding specificities.