We investigate the nonequilibrium steady state of a one-dimensional (1D) lattice gas of dimers. The dynamics is described by a totally asymmetric exclusion process (TASEP) supplemented by attachment and detachment processes, mimicking chemical equilibrium of the 1D driven transport with the bulk reservoir. The steady-state phase diagram and current and density profiles are calculated using both a refined mean-field theory and extensive stochastic simulations. As a consequence of the on-off kinetics, a phase coexistence region arises intervening between low and high density phases such that the discontinuous transition line of the TASEP splits into two continuous ones. The results of the mean-field theory and simulations are found to coincide. We show that the physical picture obtained in the corresponding lattice gas model with monomers is robust, in the sense that the phase diagram changes quantitatively, but the topology remains unaltered. The mechanism for phase separation is identified as generic for a wide class of driven 1D lattice gases.