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This paper deals with an efficient Dynamic Channel Allocation (DCA) technique applicable to terrestrial mobile cellular networks. A channel (or resource) is a fixed frequency bandwidth (FDMA), a specific time-slot within a frame (TDMA), or a particular code (CDMA), depending on the multiple access technique used. A cost function has been defined by which the optimum channel to be assigned on demand can be selected. In addition, a suitable mobility model has been derived to determine the effects of handovers on network performance. The performance of the proposed DCA technique has been derived by computer simulations in terms of call blocking and handover failure probabilities. Comparisons with the classical Fixed Channel Allocation (FCA) technique and other dynamic allocation algorithms recently proposed in the literature have been carried out to validate the proposed technique.