Pasture based dairy production may provide economic benefits over confinement operations, but information is limited on cost-effective supplementation strategies for dairy cows on pasture under south Brazil conditions. Our objective was to evaluate economic costs and returns from milk produced on pasture at varying supplementation levels in an integrated crop-dairy rotation system. The experiment was conducted at the Christian Institute Farm in Castro-PR, Brazil (24 0 47' 28'' S) July 2004 to April 2005. Cows were placed on mixed pasture of ryegrass (Lolium multiflorum) and black oat (Avena strigosa) and supplemented with 20%, 45%, 65%, and 100% of a total mixed ration designed to meet the daily nutrient requirements of dairy cows. Treatment groups of cows were placed in separate pasture paddocks in a completely randomized block design with 3 replicates. During winter, 22.4 ha of the total 32.4 ha in the experiment were subdivided into 12 similar paddocks of the ryegrass-oat pasture. The winter pasture was rotated to grain crops in summer. The other 10 ha were subdivided into 12 similar paddocks of Kikuio grass (Pennisetum clandestinum) where cows grazed through the summer. All paddocks were grazed at the same time, by placing three Holstein cows and one Jersey cow in each paddock. Continuous stocking was utilized with forage allowance regulated by the put and take method. Milk production from individual cows was measured two times per week, and the percentages of fat and protein and somatic cell count in milk were evaluated every 15 d. An economic analysis was conducted using the methodology proposed by the Parana State Agriculture Federation (FAEP). Supplementing pasture with 20% of the daily nutrient requirement provided the best results on an economic basis, with total variable costs of US$ 0.185 l^-1 and a net income (return over all costs) of US$ 0.03/ l^-1.