The aim of this study was to assess the cost-effectiveness of combination chemotherapy with paclitaxel/cisplatin, compared with standard etoposide/cisplatin in patients with advanced non-small cell lung cancer (NSCLC). We obtained the primary survival and resource utilization data from a large three-arm randomized trial comparing: paclitaxel 135 mg m(-2) by 24-h intravenous (i.v.) infusion + cisplatin; paclitaxel 250 mg m(-2) by 24-h i.v. infusion + cisplatin + granulocyte colony-stimulating factor (G-CSF); and standard etoposide/cisplatin in patients with stage IIIb or IV NSCLC. We also modelled the regimens with paclitaxel 135 mg m(-2) + cisplatin administered as an outpatient by 3-h infusion, as clinical data suggest that this is equivalent to 24-h infusion. We collected costing data from the Ottawa Regional Cancer Centre and applied it to the resources consumed in the randomized trial. We integrated these data into the Statistics Canada POpulation HEalth Model (POHEM), which generated hypothetical cohorts of patients treated with each regimen. The POHEM model assigned diagnostic work-up, treatment, disease progression and survival characteristics to each individual in these cohorts and tabulated the costs associated with each. We did sensitivity analyses around the costs of chemotherapy and its administration, and the survival differences between the two regimens. All costs are in 1997 Canadian dollars ($1.00 Canadian approximately Pound 0.39 sterling). The perspective is that of the Canadian health care system. In the trial, the two paclitaxel-containing arms had almost identical survival curves with a median survival of 9.7 months compared with 7.4 months for etoposide/cisplatin. As administered in the trial, paclitaxel/cisplatin cost $76,370 per life-year gained (LYG) and paclitaxel/cisplatin/G-CSF $138,578 per LYG relative to etoposide/cisplatin. However, when modelled as an outpatient 3-h infusion, paclitaxel/cisplatin was moderately cost-effective at $30,619 per LYG. When compared with historical controls treated with best supportive care, this regimen of paclitaxel/cisplatin cost $4539 per LYG. Assuming a 3-h paclitaxel infusion yields the same survival advantage as the 24-h infusion did in the randomized trial, paclitaxel/cisplatin is a cost-effective improvement over standard etoposide/cisplatin for patients with advanced non-small cell lung cancer.