Dundalk moved up into the top half of the table for the first time this season courtesy of Ger Robinson's second-half winner and a late penalty save by John Connolly.
Teenager Robinson, on from the 38th minute for the injured James Keddy, and partnering his uncle John Ryan in attack, reacted well to scoop home the rebound after Derry goalkeeper Russell Payne spilled a deflected shot from Jonathan Prizeman five minutes after the interval.
Dundalk, who had taken a hold on a previously tight game, thought they had increased their lead eight minutes later, but Stephen McGuinness' effort was ruled out for offside. The mercurial Liam Coyle almost snatched an equaliser for Derry 13 minutes from time. H?aving turned McGuinness inside out, Coyle's shot past Connolly was cleared off the line by Donal Broughan.
Another chance of an equaliser was then wasted on 86 minutes when Connolly dived the right way to palm away a penalty from Tommy McCallion after Jamie Hughes had been pulled down.
It wasn't for the want of some good attacking football that the first half failed to produce a goal. Both sides knocked the ball around confidently, each creating a couple of good openings.
Derry almost drew first blood when catching the Dundalk defence square on seven minutes. Tommy McCallion put Derek Philips in, the American nutmegged John flanagan and shot against the outside of Conolly's right-hand post.
Dundalk's riposte took just a minute as Eddie McCallion defended superbly as he took the ball off the toe of David Ward from Flanagan's cross. The sides again swapped chances inside 60 seconds late in the first half. Connolly was first into action to save with his feet from Padraig Moran after Tommy McCallion again unlocked the Dundalk defence. At the other end, Payne then got down well to hold a stinging low shot from Broughan.