In July 2000, he replaced Swedish coach Bo Johansson as the manager of the Denmark national football team.As his assistant coach, Olsen chose Michael Laudrup.Olsen captained the Danish team that qualified for the 1984 European Championship; Denmark's first international tournament participation since the 1972 Olympics.
With Bordinggaard, Olsen guided Denmark to the 2004 European Championship tournament, which once again ended at the first knock-out stage.
Olsen failed to qualify Denmark for the 2006 FIFA World Cup, but prolonged his contract with DBU in November 2005.
The duo guided Denmark to qualification for the 2002 FIFA World Cup tournament, a campaign which ended in the round of 16 match against England in a 0–3 defeat after Denmark won the initial stage group.
When Laudrup went on to coach Brøndby IF, Olsen chose Keld Bordinggaard as his new assistant coach.
In his second year at the club, tension arose in the Ajax dressing room, as Dutch internationals Ronald de Boer and Frank de Boer boycotted training in order to leave the club in favour of FC Barcelona.