A novel cost-effective chitosan-polyvinyl alcohol (PVA)-red mud (RM) hybrid membranes are developed and their morphological and physiochemical properties are studied. The addition of RM enhanced IEC and bound water content in composite membranes. The hydroxyl groups are consumed due to the interaction with silica oxides and depleted the crystalline phase of the composites. The tensile strength and modulus of the composite membranes were reduced. The addition of RM improves the thermal stability of the composite membrane and shifts the degradation process to a higher temperature. The RM nanoparticles depleted the hooping sites for methanol transport in the composite membrane and the permeability value reported in the modified membrane was one order lower than the Nafion (N117) membrane. The proton conductivity of the composite membranes is obtained by fitting the EIS data in an equivalent circuit model. The composite membrane provides higher proton conductivity at reduced relative humidity conditions and the proton transport was governed by Grotthus mechanism. The modified membrane provides the maximum power density of 44 mW/cm2 at a current density of 140 mA/cm2. The durability test was conducted at a current density of 0.15 A/cm2 and 70 °C for 144 h to evaluate fuel cell performance and voltage decay. The durability study confirms that the modified membrane provides higher cell stability with marginal drop in cell voltage (1.76%). The reduction of methanol cross-over and the enhancement of membrane selectivity increases power density of the direct methanol fuel cell.