OBJECTIVES:  Lung cancer has a high mortality and is associated with a substantial financial burden. Cost-effectiveness estimated from foreign studies are usually not directly comparable between countries without adapting by applying the appropriate national value set. This study was performed to evaluate the cost-effectiveness of erlotinib versus docetaxel in patients with advanced non small cell lung cancer(NSCLC) who have failed previous chemotherapy in Korea. METHODS:  A Markov model simulated to access the clinical and economic impact of erlotinib or docetaxel over 2 years from society perspective. Progression free survival(PFS) and overall survival(OS) data were derived from clinical trials, and utility/disutility data were collected in published study. Life year gained(LYG) is projected based on clinical outcomes and converted to quality-adjusted life years(QALYs) by utility weight. Both direct medical costs(e.g. drugs, visits, monitoring, etc.) and non-medical costs were calculated. Costs and outcomes were discounted at an annual rate of 5% and incremental cost-effectiveness ratio(ICER) consists of the difference in cost divided by the difference in QALYs. We performed sensitivity analysis to evaluate uncertainty in the results. RESULTS:  After 2 years follow-up, the total costs per patient was lower with erlotinib(11,234,900KRW, 1USD=1156.53KRW as of Feb 2010) than with docetaxel(12,105,719KRW). More QALY per patient would be obtained with erlotinib than with docetaxel(0.268 and 0.213, respectively). Thus, ICER for erlotinib compared to Docetaxel is -15,829,756KRW per QALY. The results of the sensitivity analysis showed no significant difference. CONCLUSIONS: This study suggests, with its underlying assumptions and data, the use of erlotinib as 2nd or 3rd line treatment for advanced NSCLC would not only save costs but also improve outcomes compared with docetaxel in Korea.