Aims/hypothesis. The purpose of this study is to investigate the cost-effectiveness of simvastatin in diabetic patients, using prospectively collected outcomes data from the Scandinavian Simvastatin Survival Study. Methods. Diabetic patients were identified using two different classifications schemes: Clinical history (diabetic, non-diabetic) and the new American Diabetes Association definition (diabetic, impaired fasting glucose, normal fasting glucose). The analysis is based on prospectively collected data from the trial on hospitalization for cardiovascular problems, study drug utilization and mortality. The incremental cost per life year saved with simvastatin is estimated using costs from Sweden (primary) and other European countries. Results. Hospitalizations for cardiovascular problems were considerably reduced with simvastatin therapy, with the greatest differences in the diabetic subgroups. Reductions in hospitalizations in the diabetic group resulted in substantial hospital cost savings that offset 67 to 76 % of the drug cost (depending on the classification used). For the diabetic patients, the estimates of the cost per life-year gained ranged from 1600 Euros (based on clinical history) to 3200 Euros (based on American Diabetes Association) using Swedish costs. In the other evaluated European countries treatment with simvastatin showed a favourable cost-effectiveness ratio independent of differences in local health care unit costs. Conclusion/interpretation. For all subgroups in the diabetic classification schemes, treatment with simvastatin resulted in estimates of cost per life-year gained that were well within the range generally considered to be cost effective. Based on the Scandinavian Simvastatin Survival Study, simvastatin therapy provides good value for money in both diabetic and non-diabetic patients with cardiovascular disease. [Diabetologia (1999) 42: 1293–1301]