We present computer simulation of diurnal air movement and pollutant dispersion over complex terrain with heat and emission islands. The method, based on numerical solution of momentum, energy and concentration equations in time and space using an algebraic turbulence closure for subscale (unresolved) motion, can account for terrain topography and dynamics of meteorological conditions. The case study presented is a realistic scenario over a medium-sized town situated in a mountain valley during windless winter days when the lower atmosphere is capped by an inversion layer preventing any escape of pollutants. The air movement and pollutant dispersion are governed primarily by the day ground heating and night cooling and by the terrain configuration. The results include the predictions of local values (and their time and space variation) of air velocity, temperature and pollutant concentration. The approach can be used for regulating emission during critical weather periods, as well as for long-term planning of urban and industrial development, for optimum location of industrial zones and for design of city transportation and traffic systems. (c) 2004 Elsevier Ltd. All rights reserved.