The photoproduction of K0 on the deuteron has been investigated with the inclusion of the YN and KN final-state interaction (FSI), as well as the pion-mediated process γd→πNN→KYN. The YN rescattering effects for the inclusive cross section are found to be large in the threshold regions. Polarization observables show sizable FSI effects at larger kaon and hyperon angles. It is shown that the extraction of the elementary γN→KY amplitude is possible in the quasifree scattering region where FSI effects are negligible. Furthermore, the cross sections in this region are large, indicating that measurements in this kinematic region are favored.