Perfectly matched layers are employed in time harmonic analysis of dam-foundation systems. The Lysmer boundary condition at the truncation boundary of the PML region has been incorporated in the formulation of the dam-foundation FE model (including PML). The PML medium is defined in a way that the formulation of the system can be transformed into time domain. Numerical experiments show that applying Lysmer boundary conditions at the truncation boundary of the PML area reduces the computational cost and make the PML approach a more efficient technique for the analysis of dam-foundation systems.