OBJECTIVE: To assess the cost-effectiveness of cotrimoxazole prophylaxis in HIV-infected children in Zambia, as implementation at the local health centre level has yet to be undertaken in many resource-limited countries despite recommendations in recent updated World Health Organization (WHO) guidelines. DESIGN: A probabilistic decision analytical model of HIV/AIDS progression in children based on the CD4 cell percentage (CD4%) was populated with data from the placebo-controlled Children with HIV Antibiotic Prophylaxis trial that had reported a 43% reduction in mortality with cotrimoxazole prophylaxis in HIV-infected children aged 1-14 years. METHODS: Unit costs (US$ in 2006) were measured at University Teaching Hospital, Lusaka. Cost-effectiveness expressed as cost per life-year saved, cost per quality adjusted life-year (QALY) saved, cost per disability adjusted life-year (DALY) averted was calculated across a number of different scenarios at tertiary and primary healthcare centres. RESULTS: : Cotrimoxazole prophylaxis was associated with incremental cost-effectiveness ratios (ICERs) of US$72 per life-year saved, US$94 per QALY saved and US$53 per DALY averted, i.e. substantially less than a cost-effectiveness threshold of US$1019 per outcome (gross domestic product per capita, Zambia 2006). ICERs of US$5 or less per outcome demonstrate that cotrimoxazole prophylaxis is even more cost-effective at the local healthcare level. The intervention remained cost-effective in all sensitivity analyses including routine haematological and CD4% monitoring, varying starting age, AIDS status, cotrimoxazole formulation, efficacy duration and discount rates. CONCLUSION: Cotrimoxazole prophylaxis in HIV-infected children is an inexpensive low technology intervention that is highly cost-effective in Zambia, strongly supporting the adoption of WHO guidelines into essential healthcare packages in low-income countries.