This paper makes a research on the optimal subsidy of cotton production by applying the principal component regression method.The analysis indicates that，from the view of economic stimulus effect，pesticide subsidy，rather than seed subsidy，is the optimal subsidy for cotton production in china.The reason lies in the frequent and serious insect pest disasters in cottonproducing areas in China.Therefore，pesticide subsidy is the most crucial factor to promise a good cotton production.Besides pesticide subsidy，seed subsidy，fertilizer subsidy，machinery subsidy and irrigation subsidy all have positive influence on China’s cotton production.So government should set up special research fund to encourage institutes and enterprises to research and develop highly effective and environmentally friendly pesticide.At the same time，the researches to improve cotton variety for better pestproof and antidisease ability should be carried out along with the effort for better prediction and prevention of insect disaster by establishing cotton pest monitoring and predicting system.Last but not least，〖JP2〗if the state finance allows，a subsidy combination of seed，fertilizer，pesticide，machinery and irrigation subsidy should be implemented.