OBJECTIVES: The total economic impact of type 2 diabetes in Germany is widely unknown and underestimated since its complications are often not taken into account. The pan-European cost of illness study (CODE-2: Costs of Diabetes in Europe, Type 2) aimed at measuring the total cost of patients with type 2 diabetes including both costs of management and complications. METHODS: For Germany, a bottom-up, prevalence-based design was used to collect data on resource utilisation of 809 patients with diabetes type 2 for the year 1998. A representative random sample of 135 office-based physicians (GPs and specialists) provided data using patients’ medical records in face-to-face interviews. For the extrapolation on a population level, costs were weighted according to prevalence data on complications derived from an epidemiological pre-study. Data were analysed from a societal perspective. RESULTS: Total direct medical costs per patient per year were on average DM 7,012, ranging from DM 156 to DM 137,512. The main part of the costs (61%) was induced by hospitalisations and long-term care. Observed costs per treatment type were DM 5,890 for diet, DM 5,621 for OAD and DM 9,799 for insulin-treated patients. The analysis per complication status showed a range from DM 3,716 for patients without, and up to DM 13,283 for patients with both micro- and macrovascular complications. Assuming a diabetes type 2 prevalence of 4.24%, the total annual direct costs for the respective population were estimated to be DM 24,388 million. CONCLUSIONS: The data substantiate the enormous socio-economic burden and that costs are much higher than estimated in previous studies. Treatment costs of diabetes show a broad variance. Costs increase with age and are highly related to occurrence of complications and onset of insulin treatment. Furthermore, the study highlights that costs are directly related to the severity of the patient’s illness.