Background: Pharmacoeconomic analyses are becoming an increasingly integral component of the overall profile of new drugs. This is particularly true for terbinafine and itraconazole, because both agents have been shown to be clinically effective and relatively safe. Objective: This study examined the cost-effectiveness of terbinafine and itraconazole in two recent comparative clinical trials of these new agents for onychomycosis of the toenails. Methods: Data as reported in the two clinical trials were used as the basis for an analytic decision-tree model that included cost of drug, medical management of the disease and any adverse reactions, and clinical efficacy data into calculations that estimated the relative cost effectiveness ratio for each drug on the basis of cost per disease-free day. Results: The total cost of terbinafine therapy ranged from $697.55 to $699.11, and the total cost of itraconazole therapy ranged from $1216.40 to $1218.80. The expected cost per disease-free day of itraconazole was $2.05 and $2.37, in the Bräutigam and De Backer trials, respectively; similar costs for terbinafine were $1.27 and $1.50. Relative to terbinafine, which was assigned a value of 1.0, the cost-effectiveness ratio of itraconazole was 1.62 and 1.58 in each trial, indicating a lower cost-effectiveness than terbinafine. Conclusion: Terbinafine is more cost-effective than itraconazole in the treatment of toenail onychomycosis. (J Am Acad Dermatol 1998;38:S69-72.)