The method of Israel and Weller (Estimation of candidate gene effects in dairy cattle populations. Journal of Dairy Science 1998, 81, 1653-1662) to estimate quantitative trait locus (QTL) effects when only a small fraction of the population was genotyped was investigated by simulation. The QTL effect was underestimated in all cases, but bias was greater for extreme allelic frequencies, and increased with the number of generations included in the simulations. Apparently, as the fraction of animals with inferred genotypes increases, the genotype probabilities tend to 'mimic' the effect of relationships. Unbiased estimates of QTL effects were derived by a modified 'cow model' without the inclusion of the relationship matrix on simulated data, even though only a small fraction of the population was genotyped. This method yielded empirically unbiased estimates for the effects of the genes DGAT1 and ABCG2 on milk production traits in the Israeli Holstein population. Based on these results, an efficient algorithm for marker-assisted selection in dairy cattle was proposed. Quantitative trait loci effects are estimated and subtracted from the cows' records. Genetic evaluations are then computed for the adjusted records. Animals are then selected based on the sum of their polygenic genetic evaluations and QTL effects. This scheme differs from a traditional dairy cattle breeding scheme in that all bull calves were considered candidates for selection. At year 10, total genetic gain was 20% greater by the proposed algorithm as compared to the selection based on a standard animal model for a locus with a substitution effect of 0.5 phenotypic standard deviations. The proposed method is easy to apply, and all required software are 'on the shelf.' It is only necessary to genotype breeding males, which are a very small fraction of the entire population. The method is flexible with respect to the model used for routine genetic evaluation. Any number of genetic markers can be easily incorporated into the algorithm, and the reduction in genetic gain due to incorrect QTL determination is minimal.