A combined optimization-simulation approach was used to develop and evaluate the alternate priority-based policies for operation of surface and groundwater systems and is demonstrated with a case study. An optimization model was used to find optimal cropping pattern with and without the conjunctive use of surface and groundwater, as well as with and without socio-economic constraints. The optimization model, based on linear programming, maximizes the net benefit from irrigation activities subject to various physical, economical, and social constraints. A simulation model was used to evaluate the conjunctive operation of the system using the optimal cropping pattern derived from the optimization model. The developed policies have been verified with long-generated stream flow sequences. Three alternate priority-based policies differing in level of groundwater pumping and area of cultivation of rice crop have been evaluated: (1) irrigation with surface water only (Policy-1); (2) irrigation with conjunctive use of surface and groundwater, without socio-economic constraints (Policy-2); and (3) irrigation with conjunctive use operation and with socio-economic constraints (Policy-3). It was found that the use of available groundwater within three meters below ground level (Policy-2) to be optimal, and these results were used in simulation for further evaluation of policies. It was also found that the policy-3 of conjunctive use operation with a priority of 75 percent of maximum possible rice area (using groundwater available within four meters below ground level) resulted in a better scenario. Thus the conjunctive use Policy-2 and Policy-3 with 75 percent of maximum possible rice crop area can be used as better policies for the system studied. © 2003 Taylor & Francis Group, LLC.