OBJECTIVES: In the Arimidex, Tamoxifen Alone or in combination (ATAC) trial, anastrozole produced significantly longer disease-free survival and time to recurrence compared with tamoxifen in postmenopausal women with hormone receptor-positive (HR+) early breast cancer after 5 years of treatment (ATAC Trialists' Group. Lancet 2005;365:60-2). A cost-effectiveness analysis of anastrozole compared with generic tamoxifen was undertaken for inclusion in a submission to the Australian Pharmaceutical Benefits Advisory Committee (PBAC) seeking national reimbursement for anastrozole in early breast cancer. METHODS: A Markov model and Weibull survival curves fitted to trial data were used to project 5-year outcomes from the ATAC trial to an actuarial time point of 20 years (a conservative lifetime equivalent). Resource utilisation data were obtained from a survey of Australian physicians and the published literature. Unit costs (2003-4 AU$) were obtained from routine sources. A societal perspective was adopted although indirect costs were not included. Utility scores, derived from a study in postmenopausal women with early breast cancer, were incorporated into the model. Costs and benefits were discounted at the annual rate of 5%. Incremental cost effectiveness ratios (ICERs), 95% CIs, and acceptability curves were calculated. RESULTS: The ICERs and 95% CIs for anastrozole compared with tamoxifen at 20 years were AU$28,532 (AU$16,146–AU$65,500) per life year gained and AU$24,113 (AU$13,170–AU$59,357) per QALY gained. There was a greater than 90% probability that the cost per QALY gained with anastrozole would be lower than AU$50,000. The results were sensitive to the time horizon of the model and the assumptions about the duration of treatment benefit. CONCLUSIONS: Compared with thresholds accepted in Australia for new drug entities, anastrozole is a cost-effective alternative to generic tamoxifen for primary adjuvant treatment of postmenopausal women with HR+ early breast cancer.