This paper presents a poly(dimethyl siloxane) (PDMS) polymer microfluidic device using alternating current (ac) dielectrophoresis (DEP) for separating live cells from interfering particles of similar sizes by their polarizabilities under continuous flow and for characterizing DEP behaviors of cells in stagnant flow. The ac-DEP force is generated by three-dimensional (3D) conducting PDMS composite electrodes fabricated on a sidewall of the device main channel. Such 3D PDMS composite electrodes are made by dispersing microsized silver (Ag) fillers into PDMS gel. The sidewall AgPDMS electrodes can generate a 3D electric field that uniformly distributes throughout the channel height and varies along the channel lateral direction, thereby producing stronger lateral DEP effects over the entire channel. This allows not only easy observation of cell/particle lateral motion but also using the lateral DEP force for manipulation of cells/particles. The former feature is used to characterize the frequency-dependent DEP behaviors of Saccharomyces cerevisiae (yeast) and Escherichia coli (bacteria). The latter is utilized for continuous separation of live yeast and bacterial cells from similar-size latex particles as well as live yeast cells from dead yeast cells. The separation efficiency of 97% is achieved in all cases. The demonstration of these functions shows promising applications of the microfluidic device.