Taxis are an important component of urban passenger transport. Research on the daily dispatching of taxis and the utility of governmental management is important for the improvement of passenger travel, taxi driver income and environmental impacts. However, urban taxi management is a complex and dynamic system that is affected by many factors, and positive/negative feedback relationships and nonlinear interactions exist between each subsystem and variable. Therefore, conventional research methods can hardly depict its characteristics comprehensively. To bridge this gap, this paper develops a system dynamics model of urban taxi management, in which the empty-loaded rate and total demand are selected as key factors affecting taxi dispatching, and the impacts of taxi fares on driver income and travel demand are taken into account. After the validation of the model, taxi operations data derived from a prior analysis of origin–destination data of Beijing taxis are used as input for the model to simulate the taxi market in Beijing. Finally, economic and environmental implications are provided for the government to optimise policies on taxi management.