OBJECTIVE: To carry out economic evaluation of drug therapy among diabetic patients. METHODS: The methodology was Cost of Illness Analysis. Out–Patients were considered. Drug review was carried out retrospectively for randomly sampled 37 case notes over one-year period. Demographic data were collected and number of hospital visits, fasting blood sugar and blood pressure at each visit, drugs prescribed at each visit. Cost components were the direct costs. These include the total cost of drugs over one-year period, personnel cost, diagnostic costs, and transport cost. Hospital cost of the drugs were used, cost per defined daily dose of each drugs were calculated as well as the total drug cost, taken the duration of therapy into consideration. Stop-watch-time studies and monthly earnings were used in the calculation of personnel cost. Since the study covers one year period (July, 2003- August, 2004) neither discounting nor inflation were considered in the analysis. RESULTS: Most of the patients were Type-II Diabetes Mellitus (n=33;89.2%) while Type-I (insulin required) were four (10.8%). In total, 83.8% were hypertensive. Total costs of drugs= N1,219,932.70 (US $8,713.81), Anti-diabetic drugs= N689,231.50 (US $4,923.82)(56.5%), Anti-hypertensive drugs= N530,701.20(US $3,790)(44.5%), Transport= N30,696.70, Diagnostic= N56,400, Personnel= N53,340.40. Total Cost of Illness for one year for 37 patients= N1,360,369.80 (US $9,716.93). Total cost of treating 1000 patients= N1,360,369800.00 (US $9,716,930.00) aside indirect cost among others per year. Average cost per patient= N36,766.75(US $262.62) (84.7% of N43,400.00(US $310.0) per capital income in Nigeria). Range; N2,618.44(US $18.70) and N268,572.81(US $1918.38). N=Naira. CONCLUSION: Spending an average of 84.7% of per capital income to treat an illness annually is highly unfortunate as this further worsens the quality of life of such patients. This call for good understanding of the disease condition by the society to minimize the incidence while ensuring compliance and also for improved policy by government.