This paper examines, first, the conditions under which sustained economic growth and the preservation of environmental quality are compatible and optimal, and, second, in what way economic growth is affected by environmental policy. A general equilibrium one-sector model is developed in which the environment is essential for production and welfare. The growth rate is endogenously determined. Pollution occurs as an inevitable by-product of economic activity but can be reduced by spending a fraction of total output on abatement activities.