BACKGROUND: Prostate cancer is the most common type of malignancy found in U.S. male population and the second leading cause of cancer fatality in men. PSA screening is a common test in prostate cancer diagnosis. This research investigates its cost-effectiveness. METHODS: A cost-effectiveness model is constructed following a cohort of patients aged 60 to 75 taken from a general U.S. population. Clinical outcomes, costs, and transition state probabilities were derived from medical literature and used to construct a Markov state probability model. The analysis takes a societal perspective and all costs were converted to 2000 dollars. Discount rate in base case was 3%. The parameters in the base-case were assessed for robustness using one-way sensitivity analysis. RESULTS: We found that a screening program with annual PSA testing starting at age 60 would result in cost-effectiveness ratios of $8000 per QALY. One-way sensitivity testing found the results to be very stable. Threshold analysis revealed that screening ceased to be cost-effective (CE ratio > $50,000/QALY) only when costs for procedures such as prostate surgery approached $500,000 or prostate cancer was detected at much levels (80% true positives in first year of testing, up from current 20%) in the population. CONCLUSIONS: The model suggests that annual PSA screening of male population for prostate cancer is extremely cost-effective, given current data. Further research into outcomes of prostate cancer is needed to estimate cost-effectiveness of screening in various subpopulations. In particular, given the long clinical progression of prostate cancer, more research is required into outcomes and cost-effectiveness in relatively healthy patients versus those burdened by serious co-morbidities.