A hybrid towel dispenser is provided that can be operated in an automatic dispensing mode and a manual dispensing mode. The dispenser includes a drum having a retractable knife that extends out of the drum when the drum rotates past a selected position and severs a towel segment from a towel sheet. The dispenser also includes a motor, a manual advance assembly, and a one-way rotational coupling that couples the motor to the drum such that the motor rotates the drum in the automatic dispensing mode and a user can rotate the drum in the manual dispensing mode separately from the motor, using the manual advance assembly.