This report describes the Groundwater-Management (GWM) Process for MODFLOW-2005, the 2005 version of the U.S. Geological Survey modular three-dimensional groundwater model. GWM can solve a broad range of groundwater-management problems by combined use of simulation- and optimization-modeling techniques. These problems include limiting groundwater-level declines or streamflow depletions, managing groundwater withdrawals, and conjunctively using groundwater and surface-water resources. GWM was initially released for the 2000 version of MODFLOW. Several modifications and enhancements have been made to GWM since its initial release to increase the scope of the program's capabilities and to improve its operation and reporting of results. The new code, which is called GWM-2005, also was designed to support the local grid refinement capability of MODFLOW-2005. Local grid refinement allows for the simulation of one or more higher resolution local grids (referred to as child models) within a coarser grid parent model. Local grid refinement is often needed to improve simulation accuracy in regions where hydraulic gradients change substantially over short distances or in areas requiring detailed representation of aquifer heterogeneity. GWM-2005 can be used to formulate and solve groundwater-management problems that include components in both parent and child models. Although local grid refinement increases simulation accuracy, it can also substantially increase simulation run times.