BACKGROUND: Acute lower respiratory tract infections (ALRTI) are a leading cause of childhood mortality, but there are few data on disease costs in developing countries. OBJECTIVES: This study's purpose was to analyse ALRTI's costs-of-illness and economic burden in urban South African children. METHODS: ALRTI costs-of-illness (expressed in US$ 2010) at a tertiary hospital were measured using a micro-costing approach nested within a clinical trial. Demographic, epidemiological and data on use of health resources were integrated with costs-of-illness to estimate the economic burden of ALRTI in urban South African children aged <5 years. RESULTS: 745 children experiencing 858 ALRTI episodes were studied. 338 (39.4%), 513 (59.8%) and 7 (0.8%) episodes were managed in short-stay, paediatric ward and intensive care settings, respectively. Mean lengths of stay in short-stay, paediatric ward and intensive care (ICU) were 1.4, 8.1 and 14.4 days, respectively. The societal costs-of-illness per ALRTI episode managed in short-stay and paediatric ward settings, respectively, were US$266 (95% CI 245-286) and 1287 (95% CI 1174-1401) in HIV-infected patients, and US$257 (95% CI 247-267) and 1032 (95% CI 931-1133) in HIV-uninfected patients. Family costs were not collected in ICUs. ICU direct medical costs were US$5968 (95% CI 4025-8056) in HIV-uninfected patients and US$7849 in one HIV-infected patient. Under-5 children experienced an estimated 424,220 episodes annually of ALRTI. ALRTI treatment cost the public health system an estimated US$28,975,000 while an additional US$539,000 of costs were borne by families. CONCLUSION: ALRTIs in children <5 years impose a heavy economic burden on families and the South African public health-care system.