An optimal dispatch strategy is crucial for an isolated wind–diesel power system to save diesel fuel and maintain the system stability. The uncertainty associated with the stochastic character of the wind is, though, a challenging problem for this optimization. In this paper, a dynamic multi-stage decision-making model is proposed to determine the diesel power output that minimizes the cost of running and maintaining the wind–diesel power system. Optimized operational decisions for each time period are generated dynamically considering the path-dependent nature of the optimal dispatch policy, given the plausible future realizations of the wind power production. A numerical case study is analyzed and it is demonstrated that the proposed stochastic dynamic optimization model significantly outperforms the traditional deterministic dispatch strategies.