Background: Few cost-effectiveness analyses have been conducted on topical therapies for atopic dermatitis. Objective: We sought to compare cost-effectiveness of high-potency topical corticosteroids (HPTCs) and tacrolimus ointment for the treatment of moderate to severe atopic dermatitis for patients who are not responsive to or not well controlled with mid-potency topical corticosteroids. Methods: A Markov model represented the cyclic nature of atopic dermatitis. Clinical outcomes were derived from published literature. “Efficacy” was defined as disease-controlled days on which patients experienced a greater than 75% improvement in their disease. Resource use and changes in management were on the basis of opinions of a physician panel; secondary treatment was an oral antibiotic with topical corticosteroids. Sensitivity analyses were conducted for all variables. Results: The model was sensitive to duration of continuous treatment with HPTCs. HPTCs, when limited to 2-week treatment cycles, were associated with the highest total costs ($1682 per year) and the least efficacy (185 disease-controlled days). HPTCs in 4-week treatment intervals and tacrolimus ointment were similar in total costs and efficacy ($1317 vs $1323 for 194 vs 190 disease-controlled days, respectively). Although primary drug costs were higher for patients treated with tacrolimus ointment, patients treated with regimens of HPTCs incurred higher secondary drug costs. Conclusion: In the base case analyses, tacrolimus ointment was more cost-effective than HPTCs administered in 2-week treatment cycles, and similar in cost-effectiveness to 4-week cycles of HPTCs. (J Am Acad Dermatol 2003;48:553-63.)