The study develops the methodology for deriving the optimal operating policy for the long-term conjunctive management of aquifers and surface reservoirs to meet the municipal, industrial and irrigation demands of an urban area, taking into account the dynamic and stochastic aspects of the demands as well as the stochastic nature of the hydrologic inputs. An example urban area was selected with a wide range of possible sources of water. The choice was San Antonio, Texas, where the range of water sources includes both ground and surface water as well as the possibility of using waste water in a system that includes both urban as well as irrigation uses.