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 hormone receptor-positive (HR+) postmenopausal women with early breast cancer after 5 years of treatment. (ATAC Trialists' Group. Lancet 2005;365:60–2) Based on these ATAC results, the cost-utility of anastrozole versus tamoxifen is estimated from the perspective of the UK National Health Service (NHS). 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 25 years. Resource utilisation data were obtained primarily from a physician survey. Unit costs (2003-4 UK£) were obtained from routine NHS sources. Utility scores for relevant health states were obtained from 26 representative UK patients, using a standard gamble technique. Costs and benefits were discounted at the annual rate of 3.5%. All effectiveness and cost parameters subject to uncertainty were varied in a probabilistic analysis. Incremental cost effectiveness ratios (ICERs), 95% CIs, and acceptability curves were calculated. RESULTS: The estimated 25 year ICER of anastrozole compared with generic tamoxifen was £7811 (£219 - 31,438) per QALY gained with a probability of the order of 90% that it lies below £20,000 per QALY gained. The results were sensitive to the time horizon of the model and the assumptions about the length of the treatment benefit. CONCLUSIONS: Anastrozole is a cost-effective alternative to tamoxifen for the adjuvant treatment of postmenopausal women with HR+ early breast cancer from the UK NHS perspective, with the cost per QALY gained with anastrozole falling well within the range considered acceptable for reimbursement in the UK.