OBJECTIVES: As part of a pan-European cost of illness study in eight countries (CODE-2*: Costs of Diabetes in Europe, Type 2) the CODE-2* UK objective was to measure cost of care for patients with type 2 diabetes (T2D) in terms of management and complication costs in the UK. METHODS: This was a bottom-up, prevalence-based study design, which collected resource use and clinical outcome data across primary and secondary care. Data sources include comprehensive population-based diabetes registers (the ‘primary databases’) and hospital and primary care records (‘secondary databases’). 756 T2D patients (defined as aged 30 or above at diagnosis) were identified from 3 registers. Clinical data was reviewed against treatment guidelines to assess status of T2D management. Preliminary results based on data in the 6-month period July 1st to December 31st 1998 were analyzed first. RESULTS: Assuming a UK prevalence of T2D of 2% the total direct medical costs for people with T2D in the UK in 1998 were estimated to be £1.83 billion or 3.4% of healthcare expenditure. Average costs for patients with T2D were £1550 per year. The costs attributed to oral anti-diabetic drugs comprised 2.7% of overall direct costs. Costs for patients with T2D with microvascular and macrovascular complications with indicators of Insulin Resistance Syndrome were higher than for patients without complications. The proportion of patients achieving good glycemic control (<6.5% HBA1c) decreased as patients progressed from diet and exercise through to insulin alone or in combination, highlighting the progressively increasing need for treatment as duration of disease increases. CONCLUSIONS: CODE-2* UK provides evidence of direct costs and management of T2D in the NHS. It is a rich data set to inform Health Boards, Health Authorities and Primary Care Groups of how costs are composed and the likely outcomes seen for T2D management. *Trademark of SmithKline Beecham plc