Changes in the relative performance of genotypes (sires) across different environments, which are referred to as genotype–environment interactions, play an important role in dairy production systems, especially in countries that rely on imported genetic material. Importance of genotype by environment interaction on genetic analysis of milk yield was investigated in Holstein cows by using random regression model. In total, 68 945 milk test-day records of first, second and third lactations of 8515 animals that originated from 100 sires and 7743 dams in 34 herds, collected by the Iranian animal breeding centre during 2007–2009, were used. The different sires were considered as different genotypes, while factors such as herd size, herd milk average (HMA), herd protein average and herd fat average were used as criteria to define the different environments. The inclusion of the environmental descriptor improved not only the log-likelihood of the model, but also the Bayesian information criterion. The results showed that defining the environment on the basis of HMA affected genetic parameter estimations more than did the other environmental descriptors. The heritability of milk yield during lactating days reduced when sire · HMA was fitted to the model as an additional random effect, while the genetic and phenotypic correlations between lactating months increased. Therefore, ignoring this interaction term can lead to the biased genetic-parameter estimates, reduced selection accuracy and, thus, different ranking of the bulls in different environments.