Recent clinical trial results have demonstrated that, in patients with type 2 diabetes, second-line treatment of rosiglitazone in combination with metformin can lead to significant improvements in the control of fasting plasma glucose/ glycosylated haemoglobin A1c (HbA1c) after the failure of metformin monotherapy. Our objective was to assess the cost-effectiveness of the use of rosiglitazone in combination with metformin in overweight and obese patients with type 2 diabetes in the UK, failing to maintain glycaemic control with metformin monotherapy compared with conventional care using metformin in combination with sulfonylurea. The Diabetes Decision Analysis of Cost--type 2 (DiDACT) model, an established long-term economic model of type 2 diabetes, which projects the relationship between treatment and HbA1c over extended periods, was used to determine the health outcomes and economic impact for matched age and sex cohorts of 1000 patients with type 2 diabetes. The perspective was that of the UK National Health Service and all costs were in UK pounds sterling. Treatment with rosiglitazone in combination with metformin provides better glycaemic control over the remaining lifetime of patients than metformin and sulfonylurea combination therapy. Patients treated with rosiglitazone combination therapy were predicted to have a longer life expectancy, gaining 123 and 140 additional life years per 1000 patients in the obese and overweight cohorts, respectively. Improvements in morbidity and a delay in the start of insulin therapy resulted in a projected improvement in quality of life. These effects combine with projected improved survival to yield 131 and 209 additional quality-adjusted life-years (QALYs) per 1000 patients in the obese and overweight cohorts, respectively. Discounted incremental cost-effectiveness ratios were estimated at pounds 16,700 per QALY gained for the obese cohort and pounds 11,600 per QALY gained for the overweight cohort. The model predicts that rosiglitazone in combination with metformin is a cost-effective treatment in the UK for both obese and overweight patients failing on metformin monotherapy, compared with conventional therapy using metformin in combination with sulfonylurea.