In what format do you have the DEM (DTM/DSM)?
Usually it is a Raster file. See Adding raster data to a map
- Add it by dragging and dropping from the Catalog, another ArcGIS application, or the Windows file browser window.
- Add it using the Add Data button on the Standard toolbar.
Are you not able view the dataset in ArcCatalog or open using the method stated above?
Could you attach a screenshot of the directory containing the mentioned files (from ArcCatalog)?