We investigate the effect of exchange and correlation ͑XC͒ on the plasmon spectrum and the Coulomb drag between spatially separated low-density two-dimensional electron layers. We adopt a different approach, which employs dynamic XC kernels in the calculation of the bilayer plasmon spectra and of the plasmon-mediated drag, and static many-body local field factors in the calculation of the particle-hole contribution to the drag. The spectrum of bilayer plasmons and the drag resistivity are calculated in a broad range of temperatures taking into account both intra-and interlayer correlation effects. We observe that both plasmon modes are strongly affected by XC corrections. After the inclusion of the complex dynamic XC kernels, a decrease of the electron density induces shifts of the plasmon branches in opposite directions. This is in stark contrast with the tendency observed within random phase approximation that both optical and acoustical plasmons move away from the boundary of the particle-hole continuum with a decrease in the electron density. We find that the introduction of XC corrections results in a significant enhancement of the transresistivity and qualitative changes in its temperature dependence. In particular, the large high-temperature plasmon peak that is present in the random phase approximation is found to disappear when the XC corrections are included. Our numerical results at low temperatures are in good agreement with the results of recent experiments by Kellogg et al. ͓Solid State Commun. 123, 515 ͑2002͔͒.