To investigate the cost effectiveness of exemestane compared to megestrol in post-menopausal women after tamoxifen failure. A modelling study from the third-party payer perspective in Australia, Belgium, France, Germany, Italy, The Netherlands, Spain and the United Kingdom. A model was constructed, based on and driven by data on survival from a clinical study of these agents, including costs for exemestane and megestrol and costs for other treatments. Data from an observational study were used to calculate a country-specific daily cost for the other treatments. Life-years gained was used as the measure of effectiveness. Simulations were performed for 1080 days ('within trial analysis') and for a life-time perspective, in which survival after the end of the trial was assumed to be the same as the trend during follow up. Costs were presented in 1999 values. When running the model for 1080 days, the cost effectiveness of exemestane compared to megestrol varied between about EUR5000 and EUR13000 per life-year gained. In Germany it was much lower (EUR1353) due to a higher cost of megestrol. The total expected cost effectiveness (model running until no survivors left) ranged from EUR3700 (Germany) to EUR9100 (The Netherlands). The estimated cost per life-year gained is well within limits generally considered cost effective. Exemestane is cost effective compared with megestrol for postmenopausal women with progressive advanced breast cancer after therapy with tamoxifen.