OBJECTIVES: To estimate the direct health care costs of a continuing epidemic of hepatitis C virus (HCV) infection among injecting drug users (IDUs) in Australia from the formal health care system’s perspective. DESIGN: A Markov cohort model is used to map the disease paths of successive hypothetical cohorts of 1,000 patients as they develop the sequelae of HCV over an extended period of time. PATIENTS AND SETTING: IDUs becoming infected with HCV. OUTCOME MEASURES: Estimates of the number of persons in each of a limited number of disease states are used in conjunction with direct medical costs associated with ambulatory visits and inpatient hospital admissions over the course of the disease to estimate the long-term impact on the health care system of HCV infection among successive cohorts of IDUs. RESULTS: For every 1,000 IDUs newly infected with hepatitis C in a given year, there is an implied $14.32 million in health care spending over the years as sequelae become manifest, with cumulative total costs of some $0.5 billion (1994 dollars) after 60 years as the costs of successive cohorts of HCV-infected IDUs are added to the prevalence pool. If the estimated 10,000 new HCV infections in IDUs in Australia per year continue for the next 60 years, total direct health care costs will be around $4 billion over that period. CONCLUSIONS: Efforts to prevent HIV transmission among IDUs have been shown to be clearly cost-effective. These data imply that there is an even more pressing need to halt or slow the current epidemic of HCV infection among IDUs on fiscal grounds alone.