The current situation of volatile milk prices and rising costs of, e.g. grain and labour, suggests that it is worth studying productivity and efficiency in dairy farming. The objective of the current whole-system study, carried out in lowland Central Switzerland from 2007 to 2010, was to compare the performance, efficiency, land productivity and profitability of indoor-feeding (IF) dairy production with that of pasture-based feeding (PF) dairy production. An IF herd consisting of 11 Holstein–Friesian (HF) and 13 Brown Swiss (BS) cows was kept in a free-stall barn and fed a part-mixed ration (PMR) of maize silage, grass silage and protein concentrate. The cows were allocated 15·8 ha of agricultural land (AL). In the PMR, an average per lactation of 443 kg protein concentrate and 651 kg compound feed was fed by a concentrate dispenser according to the requirements of each cow. The PF herd comprised 14 Swiss Fleckvieh (SF) and 14 BS cows, which were kept in a free-stall barn throughout the winter; barn-ventilated hay was offered ad libitum during the lactation period. This herd was allocated 15·7 ha of AL. After calving in spring, the PF cows grazed on semi-continuous pastures; they consumed an average of 285 kg of concentrate per lactation. The IF cows of the BS breed produced significantly more energy-corrected milk (ECM) per standard lactation compared with PF cows (8750 v. 5610 kg), more milk fat (350 v. 213 kg) and more milk protein (306 v. 203 kg). However, the milk of PF cows had higher levels of conjugated linoleic acid (CLA) (1·9 v. 0·6 g/100 g fat) and ω−3 fatty acids (1·7 v. 0·9 g/100 g fat) than the milk of the IF cows. The calving interval (378 v. 405 days) and the empty time (87 v. 118 days) of the BS breed were significantly shorter in the PF in comparison with that of the IF production system. The IF herd yielded significantly higher ECM/ha AL and year (12 716 v. 10 307 kg), and showed a higher feed efficiency (1·3 v. 1·1 kg ECM/kg of total dry matter intake (DMI)). The productivity per hour was roughly similar in the two systems (IF: 76 v. PF: 73 kg milk/h). The PF system resulted in higher labour income compared with the IF system (20·7 v. 13·4 €/h), but the difference was not significant. In conclusion, land productivity and efficiency were higher with the IF herd than the PF herd due to the higher energy intake per kg feed. However, within the given conditions, the more interesting case, economically, might be the reduced costs and improved milk quality of the PF system rather than the increased milk yield of the IF cows.