OBJECTIVES: To determine the cost-effectiveness of V.A.C. Therapy compared to advanced wound dressings (Dermagraft and Apligraf), for diabetic foot ulcer patients treated in the U.S. METHODS: A Markov model was designed to estimate the cost per amputation avoided and the cost per quality-adjusted life year (QALY) of V.A.C. Therapy compared to advanced dressings. Over a one-year period, the Markov model simulated 1,000 patients using transition probabilities obtained from the literature. The health states used in the model were uninfected ulcer, infected ulcer, infected ulcer post-amputation, healed, healed post-amputation, amputation, and death. Unhealed V.A.C. treated patients were switched to the advanced dressing after three months of treatment while unhealed advanced dressing treated patients continued on their advanced dressing for any remaining months. RESULTS: The model results demonstrate that V.A.C. Therapy dominates the advanced dressing comparator. Over one-year, V.A.C. will result in more QALYs gained (0.54 versus 0.53 per person), less amputations (0.0011 versus 0.0012, per person) and a higher percentage of healed wounds (61% vs. 59%) and 0.68 more ulcer free months (5.79 vs. 5.11) at an overall lower cost of care ($52,830 vs. $61,757; per person). CONCLUSION: The model results indicate that V.A.C. Therapy is less costly and more effective than the advanced dressing comparator. The results are robust to changes of key parameters, including the comparator (traditional versus advanced), transition probabilities, cost of V.A.C., and the utility weights. Extending the model for a longer period (three years) resulted in even greater cost savings in the V.A.C. arm (e.g., the incremental cost would be -$10,101 and the incremental QALY would be 0.009, per person, using a 3.5% discount rate for costs and benefits).