Abstract The theory of hydraulic optimization of drilling with conventional (incompressible) drilling fluids is well known and has been widely practiced in the industry. Classical theory of hydraulic optimization for maximum drilling rate calls for either the use of empirical correlations, such as Fullerton charts, Amoco curves, etc., or the use of optimization theory to maximize some arbitrary objective functions, such as maximum bit hydraulic horsepower or jet impact force. The concept of hydraulic optimization for maximum drilling rate when drilling with aerated mud is not well investigated. Compressible nature of the aerated mud makes the use of conventional optimization theory difficult. The main objectives of hydraulic design when drilling with compressible fluids are to secure underbalanced drilling and ensure efficient cuttings transport. It is generally assumed that drilling with low head compressible fluids increase the drilling rate. This paper presents a new technique to evaluate the impact of aerated mud hydraulic design on the drilling rate. In this study, classical theory of hydraulic optimization (i.e., maximum bit hydraulic horsepower/ jet impact force criteria) has been re-visited for possible modification and application in hydraulic optimization of aerated mud drilling. As for incompressible fluids, it was found that the parasitic pressure losses for aerated drilling fluids can be treated as a power law function of the total (gas + liquid) fluid flow rate. A new methodology has been suggested to determine optimum gas/liquid injection rates for maximizing drilling rate when drilling with aerated mud. The new method can easily be used in the field to determine best combination of gas/liquid injection rates and total bit flow area (i.e., jet nozzle sizes) such that maximum drilling rate is achieved.