OBJECTIVES: It is currently estimated that 2 million South Africans suffer from Type 2 Diabetes. Experts agree that the burden of diabetes is unacceptably high. Thus access to appropriate treatment is a priority for the country. The objective of this study was to investigate the cost effectiveness of saxagliptin (Onglyza®), a DPP-4 inhibitor, plus metformin compared with a sulphonylurea (SU) plus metformin (MET) in South African patients not well controlled on metformin alone. METHODS: Data from a 52 week clinical trial comparing saxagliptin and sulphonylurea in combination with metformin was used in a simulation model to estimate long term complications in a cohort of type 2 diabetes patients. The model estimates the incidence of microvascular and macrovascular complications, diabetes-specific mortality, all-cause mortality, and ultimately, costs and quality-adjusted life years (QALYs) associated with the investigated treatment strategies. Costs and QALYs were estimated for a lifetime time horizon and discounted at 5%. The perspective of private health care funders was used. RESULTS: Compared with SU+ MET, the cost per QALY gained with saxagliptin+MET is approximately ZAR 35,566. Patients on saxagliptin+MET gain 0.1 QALYs on average when compared to SU+ MET, at an incremental cost of around ZAR 3775. The cost-effectiveness results were robust to various sensitivity analyses. The improvement in quality of life was associated mainly with lower incidence of hypoglycaemic events and modest reductions in both macro and micro vascular complications in the cohort receiving saxagliptin plus metformin compared with SU+MET. CONCLUSIONS: This study demonstrates that, over a patient’s lifetime, the addition of saxagliptin to metformin is associated with improvements in quality-adjusted life years compared with SU in patients with type 2 diabetes.  Saxagliptin treatment is a cost-effective treatment alternative for type 2 diabetes in patients not well-controlled on metformin alone.