This paper deals with the problem of regulating a monopolistic firm with unknown pollution level per output unit. By modifying Baron and Myerson's (1982) direct mechanism model, we derive the necessary and sufficient conditions for the existence of an optimal regulatory policy. In our optimal solution, the regulator's objective function, defined as consumers' surplus plus the firm's profit then minus externality caused by pollution, achieves its maximum. Under the mechanism, the firm would report its true pollution level and obtain nonnegative profit. Associated properties of the acquired optimal regulatory policy are discussed in detail. Nevertheless, this direct revelation regulatory scheme may not apply to all pollution-producing industries.