OBJECTIVES: To assess antidiabetic treatment and associated costs of patients with type 2 diabetes in Germany. METHODS: In a cost of illness study based on a representative sample of 809 patients with type 2 diabetes, treatment strategies, overall resource use and cost were investigated for the year 1998. This analysis is centred on the question of how the antidiabetic treatment influences resource use and cost. Taking the perspective of the statutory health insurance, overall direct and indirect health-care costs for diabetes patients were investigated. RESULTS: Among all patients, 19% were treated with diet and exercise only, 53% received oral anti-diabetics (OAD) and 28% were insulin recipients. The three treatment groups differed in terms of time since diagnosis of diabetes and complication status, with the most severe cases in the insulin group. Total costs were highest for patients taking insulin and amounted to 4,100 Euro. For patients on diet/exercise and on OAD total costs were 2,242 Euro and 2,184 Euro, respectively. Similarly, the cost of medication was also highest for patients taking insulin (1,296 Euro) compared to patients on OAD (576 Euro) or diet (484 Euro). The cost of hospitalisation and rehabilitation was approximately half the total cost in each group (insulin 2,166 Euro, OAD 1,105 Euro, diet 1,047 Euro). Patients on diet had similar total and inpatient costs to patients on OAD, but had highest indirect cost. A regression analysis was used to determine the influence of treatment type, time since diagnosis of diabetes and complication status on total costs. Insulin treatment and complication status had a significant impact (p < .0001) on total costs whereas time since diagnosis and other treatment types had none. CONCLUSIONS: The disease progression is reflected by the change in antidiabetic treatment. The highest costs were observed in patients treated with insulin. These patients also experience more severe complications.