OBJECTIVES: The treatment of diabetic foot ulcers is extremely costly and such ulcers have potentially profound consequences for the patient. Apligraf, a living human skin equivalent, has been shown in clinical trials to be effective in the management of DFUs resistant to standard care. However, such trials provide little or no information about long-term costs. We attempt to estimate the costs of treatment in the Netherlands with standard care and the cost-effectiveness of Apligraf. METHODS: A Markov chain model was developed to compare the treatment costs of standard care (good wound care) with Apligraf for treatment of diabetic foot ulcers.. The states in the model relate to the condition of the ulcer and the amputation status of the patient. Transition probabilities were calculated using data from the Apligraf DFU pivotal study and other published literature. Cost data were drawn from a number of sources in the Netherlands. RESULTS: The monthly cost of treating an uninfected ulcer is 432 Euros, while treating an infected or gangrenous ulcer costs 1963 and 2359 Euros per month, respectively. Amputation costs range from 7582 Euros (toe) to 15810 Euros (whole foot). For patients receiving good wound care, the annual cost of care is 4775 Euros. The results suggest that costs incurred in using Apligraf are recovered within about a year of initiating treatment. Patients receiving Apligraf experience improved healing rates and fewer amputations. As a result, Apligraf was more cost-effective than good wound care. CONCLUSION: Apligraf promises to be a cost-effective treatment for patients with DFU resistant to normal care. More rapid healing and reduced number of amputations mean that patients will have a better quality of life. Further studies are needed to examine the long term costs and effects of Apligraf treatment.