OBJECTIVE: To assess the direct medical cost of treatment, from a payer perspective, associated with the first three years of care for patients newly diagnosed with type 2 diabetes, and to contrast the costs and effectiveness associated with six commonly prescribed first-line oral antidiabetic medications. METHODS: A literature-based, decision tree cohort model was developed to project the number of patients achieving hemoglobin A1c < 7% on oral therapies and the associated costs over a three-year timeframe. Drug naïve patients could progress in a step-wise fashion to triple oral therapy prior to the introduction of insulin. The overall cost of treatment included office visits, laboratory tests, education, drug therapy, home glucose monitoring, and treatment of adverse events. To account for uncertainty in the model parameters, we conducted probabilistic sensitivity analysis via second order Monte Carlo simulation, assuming triangular distributions for the variables. RESULTS: Mean per patient cost of treatment (range: 2.5 - 97.5 percentiles of all model runs) was $6,391 ($5,150-$7,736) for glipizide GITS (Glucotrol XL), $6,774 ($5,594-$7,978) for metformin extended release (Glucophage XR), $7,034 ($5,754-$8,295) for glyburide/metformin (Glucovance), $7,068 ($5,782-$8,312) for metformin immediate release (Glucophage), $7,924 ($6,688-$9,194) for rosiglitazone (Avandia), and $8,793 ($7,123-$10,464) for repaglinide (Prandin). Regardless of first-line therapy selected, patients progressed quickly to combination therapies to achieve glycemic control, with effectiveness among the strategies being similar. In 73-99% of the model simulations, the glipizide GITS first-line strategy was cost saving compared to the other first-line strategies. CONCLUSIONS: The short-term costs required to provide comprehensive diabetes care and achieve recommended glycemic goals can be substantial. Our model suggests that a glipizide GITS strategy may provide similar effectiveness with a high likelihood of cost savings versus five other first-line agents and should be considered when selecting an initial drug therapy in type 2 diabetes.