This paper addresses short-term scheduling of hydrothermal systems by using Particle Swarm Optimization (PSO) algorithm. Particle Swarm Optimization is applied to determine the optimal hourly schedule of power generation in a hydrothermal power system. The developed algorithm is illustrated for a test system consisting of one hydro and one thermal plant respectively. The effectiveness and stochastic nature of proposed algorithm has been tested with standard test case and the results have been compared with earlier works. It is found that convergence characteristic is excellent and the results obtained by the proposed method are superior in terms of fuel cost and computation time.