Residual house-spraying (RHS) has been the mainstay of South African malaria prevention for more than 50 years, but it has been argued that insecticide-treated bednets (ITBN) could be a more effective and appropriate method of control. To provide a rational basis for choosing between the interventions, a trial was conducted during 1998 and 1999 in northern KwaZulu-Natal to collect comparable data on the effectiveness, acceptability and cost of the two interventions. The current practice of house-spraying once a year was compared with ITBN, distributed free to households and retreated annually at several specific centres. The base case results show ITBN to be significantly more effective in preventing malaria cases than RHS (overall adjusted rate ratio of 0.69), and also more costly, with an incremental economic cost per person of ITBN compared with RHS of R8.68 (US$1.42) per year, giving a gross incremental cost per case averted of R111 ($18) (1999 prices). Estimating the number of deaths averted, based on the average case fatality rate, gave a gross incremental cost per death averted of R11 718 ($1915). The additional cases averted were estimated to lead to drug cost savings of around R1 ($0.16) per capita per year, giving a net cost per case averted of R98 ($16), and net cost per death averted of R10 377 ($1696). Although the finding that the economic costs of ITBN were higher than those for RHS was relatively robust to parameter variations, the extent of the cost margin was sensitive to changes in the price and useful life of the net, and the price of the insecticide. Moreover, a switch to ITBN could lead to net financial savings if the price per net fell below $3.57 (R21.85), or if a change in policy allowed a significant reduction in the number of permanent full-time malaria control staff. In view of the greater effectiveness of ITBN, policy makers may view ITBN as a cost-effective use of resources, even if the economic costs are higher. If ITBN are implemented, close monitoring will be required of use, retreatment and useful life of nets, and resistance to insecticides, to assess any change over time in relative cost-effectiveness, and any threat to the role of the programme as a barrier to the spread of malaria transmission to other areas.