In this paper, an on-line dispatching algorithm is proposed for the FMS scheduling problem. The algorithm uses various priority schemes and relevant information concerning the load of the system and the status of jobs in the scheduling process. This information is organized into hierarchical levels. The scheduling decision process is hierarchical in the sense that different decision criteria are applied sequentially to identify the most appropriate part and the machine to be served. The algorithm schedules the jobs on a machine or an automated guided vehicle (AGV) one at a time as the scheduling decision is needed (or as the status of the system changes). Performance of the proposed algorithm is compared with several machine and AGV scheduling rules by using the mean flow-time and the mean tardiness criteria. Simulation results indicate that the proposed algorithm produces significant mean flow-time and mean tardiness improvements over existing scheduling rules for a variety of experimental conditions.