An innovative ley farming system, involving cereal crops, grown in rotation with pasture legumes, has been tentatively adopted by farmers in the semi-arid tropics of northern Australia. Yet, after more than a decade of experimental research, the long-term potential of this system remains uncertain. The approach used to address this question has been to use the APSIM (Agricultural Production Systems Simulator) model in conjunction with historical climate records to simulate system performance. Thus, the objectives of this paper were to describe APSIM, to test its performance against data from cropping systems experiments, and to use it in assessing the long-term consequences of alternative farming practice in this region of northern Australia. APSIM is able to simulate the soil carbon, water and nitrogen balances arising from interactions between different crops and pastures grown in rotation. In this paper, APSIM was configured to simulate either conventional rotations of sorghum or maize crops, or crops grown in rotation with Stylosanthes hamata (Verano) ley pastures. In the latter case, APSIM simulates the establishment of a Verano pasture sward, its growth and death, and its effects on subsequent cereal crops. The crop is either kept free of weeds or, alternatively, an understorey of volunteer legume can establish to form an intercrop where the crop and pasture compete for resources. Simulation of crop and pasture residues can encompass either their retention on the soil surface and decomposition over time, or their complete removal from the system (as hay). In comparisons of simulations against limited experimental data, APSIM was able to reproduce the measured yields from sorghum, maize and Verano grown either as sole crops, as intercrops, or in rotations of several years. Likewise, a simulation analysis using APSIM of several cropping options for Katherine, Northern Territory, resulted in the preferred outcome reflecting current farming practices in the region. This preferred option, a combination of legume hay and sorghum grain production, was shown to be superior in terms of both gross margin returns and long-term soil fertility status. It was concluded that APSIM now provides a useful tool with which farming systems in northern Australia can be further explored.