Rangeland in the arid zone of Western Australia has been degraded by sheep overstocking. The strategies available for restoring the productivity of degraded rangelands are limited. In those situations where there is still reasonable residual soil and vegetation despite moderate erosion and depletion of palatable forage plants, rehabilitation through manipulation of grazing pressure is possible. In extreme situations where there has been severe depletion of palatable perennial plants coupled with advanced soil erosion, reclamation is unlikely to succeed without various forms of cultivation or earthworks, associated with the re-introduction of a suitable seed source. Optimal range rehabilitation policies need to be discovered to restore this resource base for future use. In this paper optimal economic policies with respect to the choice of stocking rates and the timing of soil cultivation and reseeding were derived for various starting states under a stochastic optimal control framework. Evaluation of these optimal policies was carried out by analysing their long run economic and ecological impacts. All optimal policies call for a strategy of grazing management only. Even for severely degraded range, the reseeding policy is not economically viable at current cost levels. More generally, rehabilitation for moderately degraded ranges is possible if there are sufficient seedlings available, while for severely degraded ranges reclamation cannot be justified by future returns from woolgrowing, so further degradation is to be expected if this range continues to be exploited for private profit.