OBJECTIVES: Currently the Australian government funds universal influenza vaccination for persons aged 65 years and over, with annual vaccine coverage estimated to be 79%. However over a quarter of Australians aged 50-64 years have an underlying medical condition which puts them at risk of severe consequences from influenza, with annual vaccination rates of only 33% (government-subsidised and private) estimated for this age-group. The objective of this study was to examine the cost-effectiveness of extending universal free vaccination in Australia to those aged 50-64 years. METHODS: A decision analytic model previously developed for Europe was adapted to the Australian setting. Costs and benefits of universal influenza vaccination were compared to those of the existing delivery mechanisms in 50-64 year-olds. The following complications were included: influenza-like illness, influenza-attributable hospitalisations, influenza-attributable mortality, and work days lost. The model distinguished between those at high-risk and those at low-risk, to allow for different complication rates and different vaccine uptake between risk groups. Rates of complications and their associated costs (A$, 2005) were based on Australian-derived data, and vaccine effectiveness based on published data. The discount rate was 5% consistent with Australian policy. Cost-effectiveness ratios assessed included cost per Life-Years Saved (LYS) and cost per Quality-Adjusted Life-Years Saved (QALYS), and primarily considered the healthcare cost perspective which is relevant to government funding decisions. RESULTS: Compared to existing mechanisms, from a healthcare perspective a universal influenza vaccination policy has an incremental cost-effectiveness ratio (ICER) of A$9,660 per LYS, and A$12,520 per QALYS. The most influential parameters in sensitivity analysis included probability of death from influenza, vaccine efficacy against mortality, vaccine uptake, vaccine cost, and cost of vaccine administration, although the upper values were all below A$37,000. CONCLUSION: Universal influenza vaccination of Australians aged 50-64 years is a highly cost-effective strategy. The ICER is well within accepted thresholds for government funding.