We performed numerical simulations of the common envelope (CE) interaction between two intermediate-mass asymptotic giant branch (AGB) stars and their low-mass companions. For the first time, formation and growth of dust in the envelope is calculated explicitly. We find that the first dust grains appear as early as ∼1–3 yrs after the onset of the CE, and are smaller than grains formed later. As the simulations progress, a high-opacity dusty shell forms, resulting in the CE photosphere being up to an order of magnitude larger than it would be without the inclusion of dust. At the end of the simulations, the total dust yield is ∼8.2×10−3 M⊙ (∼2.2×10−2 M⊙) for a CE with a 1.7 M⊙ (3.7 M⊙) AGB star. Dust formation does not substantially lead to more mass unbinding or substantially alter the orbital evolution.