The Candystripes never really recovered from John Mountney's first-minute goal.
Michael Duffy hit the Derry woodwork before half-time and also went close on a couple of other occasions as he and Patrick McEleney both excelled.
David McMillan doubled Dundalk's lead from a 51st-minute penalty and Mourtney looped in the third on 81 before Duffy's late strike.
McMillan's penalty came after he was hauled down in the area by Dean Jarvis while Mountney's 81st-minute goal followed a defensive mistake by Darren Cole.
Derry did threaten on a couple of occasions with Aaron McEneff hitting the crossbar three minutes before half-time when the scoreline was only 1-0.
Barry McNamee missed another Derry chance shortly after the restart after being played in by Rory Patterson but Dundalk should probably have been out of sight before both those Candystripes opportunities.
Ronan Curtis started for Derry after his proposed move from Swedish club Ostersund fell through on Thursday because of his failure to agree terms.
However, the striker made little impression and was replaced midway through the second half.
Former Derry player Duffy tormented Lukas Schubert as the Candystripes badly missed the absent Conor McDermott.
Derry City bowed out of the FAI Cup at the opening stage as Dundalk clinched a comprehensive 4-0 win at Oriel Park.