OBJECTIVES: Obesity among children has developed into a major public health problem in Germany. In 1999 15% of children aged 14-17 years were obese and approximately 1% of these were diabetics. Obesity and T2DM are important causes of morbidity among young people associated with high costs for the health system. The objective of this paper is to estimate the economic burden of illness of obesity and T2DM of children and adolescents in Germany. METHODS: Cost calculations are based on the top down approach and the prevalence method. Direct costs of illness are derived from aggregate statistical data and various scientific publications. Included are costs of hospitalization (ICD 10: obesity E 65-67; T2DM E 11), costs of rehabilitation and costs of special medical programs for obese children. Other direct costs (as e.g. costs of remedies and aids or costs of drugs) could not be included due to a lack of data; the same holds for indirect costs. Except for T2DM, co-morbidities of obesity are neglected in this analysis. RESULTS: During 1999-2003 the mean direct costs of obesity per year were 5€8.3 million with €51.8 million for rehabilitation, €3.2 million for hospital care and €3.3 million for special medical programs. The costs of juvenile T2DM were €0.7 million (hospital care). Mean costs per treated obese child added up to €3540 and to €5720 per treated obese child with T2DM. CONCLUSION: Obesity and T2DM are rapidly emerging as major disorders of childhood and adolescence and as important cost drivers for the health system. There is a need for further research in costs of obesity and T2DM of children and for studies on intervention to obviate a major public health crisis in Germany. The challenge for health policy is to identify effective and efficient prevention strategies.