A new dynamic channel allocation algorithm which is integrated with transmitting power control is proposed. By introducing a new threshold, referred to as TPC threshold (Transmitting Power Control threshold), which is added some margin to the threshold of channel allocation, the subsequent transmitting power control can be performed effectively. This DCA algorithm can achieve a cellular system with both high traffic capacity and high service quality such as interference frequency performance simultaneously. The computer simulation shows that this DCA algorithm improves blocking probability performance 4 times better than that of DECT system at 14 Erlang, while keeping the same interference frequency and forced termination performances.