I think he uses the String-String fruit.
For a while now I was wondering what his fruit power was, and then while watching Rurouni Kenshin and I saw the fight with the string guy. Then it clicked. It has to be string. String can easily cut and just like in Rurouni Kenshin it can be used to manipulate people's movement. Doflamingo's hand movement also helps strengthen my theory and just like Rurouni Kenshin, the strings may be well hidden or invisible.
Anyone support this view(i looked for a thread to add this comment to, but I found no recent one discussing his power)?