In cogeneration plants with wet scrubbing of exhaust gases, the resulting flue gas condensate passes through various treatment steps prior to its discharge to recipient water body or for use as boiler feed water. The present investigation examines membrane distillation (MD) as an alternative treatment method, potentially overcoming bio-fouling and other known drawbacks of established membrane technologies while making efficient use of available heat sources and sinks. Laboratory and pilot scale experiments are performed using air gap MD system where acid neutralization has been considered as a pretreatment step in order to avoid ammonia slip. Separation efficiency, transmembrane flux, specific heat demand and net heat demand were determined at different operating conditions. Resultant separation efficiency of the contaminants shows the successful application of MD for flue gas condensate treatment, achieving results that are comparable or even better than separation with reverse osmosis (RO). The obtained transmembrane flux varied between 1.6 and 7.2 L/m2h per module depending upon the hot and cold side temperatures. For various operating conditions, specific heat demand ranged from 400 to 1000 kWh/m3 per module and corresponding net heat demand was around 17.5–110 kWh/m3. The reconcentration study found that 92% of water could be recovered from the tested flue gas condensate. Process economy shows that estimated clean condensate production cost can be as low as 1.7 $/m3.