New treatment options provide hope for patients with localized and advanced cancer. However, these advances are associated with cost, both in terms of treatment-related expenditures and effects on quality of life. It is important that patients, physicians, insurers, and policymakers understand the relationship between costs and outcomes of new cancer treatments. Various methods of cost analysis can provide a structured manner to assess cost. Cost-effectiveness analysis (CEA) compares the cost of the intervention with the effect, resulting in a cost per effect (eg, cost per year of life gained) that can be compared across interventions. In this article, we review three recent CEAs in the oncology literature, including chemoprevention in breast cancer, adjuvant endocrine therapy in early-stage breast cancer, and salvage chemotherapy in advanced ovarian cancer. The important elements of CEA, including the recommendations of the US Public Health Service Panel on Cost Effectiveness in Health and Medicine as they relate to cancer treatments, are discussed. Many well-done CEAs in cancer treatment have been performed during the last decade. As with clinical trials, the rigor and methods of the analysis are critical to the reliability of the results. Therapies with high cost and small incremental improvement in survival and/or quality of life may find it difficult to meet the societal thresholds for what is considered cost effective. CEA is a method to assess the cost and effect of cancer treatments, providing important insights into the best use (ie, obtaining the most value for) of health care expenditures. As the literature indicates, one must be cognizant of the fact that there can be extraordinary costs associated with some newer cancer therapies that provide small incremental clinical benefit. Better understanding of the cancer economic literature can help lead to an informed dialogue on the health policy implications of resource allocation in cancer care. © 2007 by American Society of Clinical Oncology.