OBJECTIVES: Hypoglycemia is a common treatment related side effect of diabetes, which can be associated with frequent emergency room use and hospitalization.  The objective of this study was to assess the direct medical costs of individual hypoglycemia events in a US population of type 2 diabetes. METHODS: Patients >18 years with type 2 diabetes diagnosed during the period 2003 to 2008 were selected from the MarketScan® Research Databases and followed from their first diabetes diagnosis in the study period until the end of continuous coverage or December 31, 2008, whichever came first. All individual hypoglycemia events identified by a claim (ICD-9-CM 250.3, 250.8, 251.0, 251.1, 251.2) on a unique date were counted for each patient. Direct medical costs were calculated per hypoglycemia event by treatment setting and diabetes drug regimen. RESULTS: A total of 2.4 million diabetes patients were selected.  During follow-up, 91,595 of these patients experienced 169,248 hypoglycemia events. Costs were highest for hypoglycemia events identified in the emergency room (ER)-to-inpatient setting ($10,362/event), followed by inpatient ($7,317/event), ER ($701/event), and outpatient ($285/event) settings. Patients treated with an insulin only regimen had the highest direct medical costs of hypoglycemia ($9.49 per patient per month).  Among patients treated with non-insulin regimens, the estimated hypoglycemia costs for patients on sulfonylureas were $3.87 per patient per month and $0.84 for other OADs. CONCLUSIONS: Direct medical costs associated with hypoglycemia among type 2 diabetes patients varied by treatment setting and drug regimen. Patients treated with insulin had the highest direct medical costs.  Within non-insulin regimens, patients on sulfonylureas had higher costs than those on non-sulfonylurea OADs. Treatment strategies that provide effective glycemic control, with a lower potential for inducing hypoglycemia should be considered in the management of type 2 diabetes.