Objective: Oseltamivir has been shown to reduce the duration of influenza symptoms in children, but recent reports of neuropsychiatric adverse events deserve consideration. This study investigated the effect that these adverse events have on the estimated cost-effectiveness of oseltamivir treatment in children. Methods: A decision analytic model was developed to project the costs and effectiveness of three clinical options for otherwise healthy five to eleven year old children with influenza-like illness: no antiviral treatment, rapid testing for influenza and treatment with oseltamivir if test is positive, and empirical oseltamivir treatment. The main outcome measure was the incremental cost-effectiveness ratio (ICER) of each intervention, in dollars per quality adjusted life year (QALY) gained. Deterministic and probabilistic sensitivity analyses were performed to quantify the effects of parameter uncertainty. Results: In the base case analysis, which assumed neuropsychiatric adverse events occurred in 0.065% of treated patients, the test and treat strategy led to an ICER of $30,800 (95% CI: $12,700 to $207,700) per QALY gained, compared to no antiviral treatment. Empirical treatment was a more costly, but more effective strategy, with an ICER of $62,500 (95% CI: cost-saving to $2,138,300) per QALY gained. When the probability of neuropsychiatric adverse events was increased to 10 times the baseline estimate (0.65%), the test and treat strategy led to an ICER of $32,300/QALY, while empirical treatment was associated with an ICER of $75,000/QALY. These ratios increased to $53,300 and $410,000, respectively, when this adverse event rate was raised to 100 times its baseline value (6.5%). Conclusion: Despite recent concern surrounding the risk of neuropsychiatric adverse events, the use of oseltamivir is projected to remain a cost-effective treatment option in this pediatric population. This conclusion is robust to substantial increases in the likelihood of these events, particularly when oseltamivir is used in conjunction with rapid testing for influenza.