Nearby dwarf irregular galaxies are ideal laboratories for studying the interstellar medium (ISM) at low metallicity, which is expected to be common for galaxies at very high redshift that will be observed by the James Webb Space Telescope. We present the first high-resolution (∼ 0.2 pc) hydrodynamical simulations of an isolated low-metallicity (0.1 Z ) dwarf galaxy coupled with a time-dependent chemistry network and a dust evolution model where dust is locally produced and destroyed by various processes. To accurately model carbon monoxide (CO), we post-process the simulations with a detailed chemistry network including the time-dependent effect of molecular hydrogen (H 2 ). Our model successfully reproduces the observed star formation rate and CO(1-0) luminosity (L CO ). We find that dust growth in dense gas is required to reproduce the observed L CO as otherwise CO would be completely photodissociated. In contrast, the H 2 abundance is extremely small and is insensitive to dust growth, leading to a CO-to-H 2 conversion factor similar to the Milky Way value despite the low metallicity. Observationally inferred dust-to-gas ratio is thus underestimated if adopting the metallicity-dependent CO-to-H 2 conversion factor. The newly-produced dust in dense gas mixes with the ISM through supernova feedback without being completely destroyed by sputtering, which leads to galactic outflows 20% -50% dustier than the ISM, providing a possible source for intergalactic dust.