The optimum policy of insemination and replacement of dairy cows was determined by the dynamic programming technique. The model used in the previous study was extended to allow variation in time of conception. From 2 to 7 months after calving three alternatives were considered for an open cow namely (a) inseminating the cow, with a calculated probability of success, (b) leaving her open, and (c) replacing her immediately. When it was profitable to leave a cow open, the optimum time for replacement during the lactation period was determined. The minimum production level for insemination to be the optimum choice depended on the stage of lactation and the parity of the cow. In the optimum situation the average calving interval was 371 days, while 13% of the cows had an interval of 14 months or longer. The optimum policy was greatly affected by changes in the replacement heifer price. Changes in the probability of conception and persistency of milk production had significant but smaller effects. In herds with a smaller decline in production after the peak, insemination should be continued for longer than in herds with a larger decline. The relation between production and calving interval that resulted from the optimum policy was determined. When a measure of milk production was used that was not affected by gestation, the average correlation was 0.09. The correlation increased to 0.35 when the total 305-day production was used.