Optimal production and product inspection policies for a deteriorating production system are considered. In theoretical investigations and practical applications using simplified models, inspection results may be assumed to be perfect. In this study, two kinds of inspection errors are considered. We first show that an inspection policy that does not inspect the first s produced items but inspects only those items from the ( s +1)th till the end of the production run is optimal. Two commonly used inspection strategies, no inspection and full inspection, are discussed. Next, we show how the optimal products inspection policy are incorporated into the determination of optimal lot size. Under the optimal inspection policy, the optimal production lot size is shown to be unique and bounded above by the traditional economic manufacturing quantity. Based on these findings, an efficient solution procedure is provided for the simultaneous determination of the optimal production lot size and its corresponding product inspection policy. Numerical examples are given to illustrate the model. Sensitivity analyses are performed to examine the effect of inspection errors on the solution.