Background: Recent phase III clinical trials have shown that the use of capecitabine with long course radiotherapy in the neoadjuvant treatment of rectal cancer provides equivalent outcomes to the traditionally used CI5FU. In the Australian health system the dispensed price of capecitabine is higher; however CI5FU administration requires a peripherally inserted central catheter (PICC). This analysis was designed to test the comparative cost of capecitabine over CI5FU from the perspective of the Australian healthcare system. Methods: We determined fully itemised direct treatment costs for the administration of neoadjuvant long course chemoradiotherapy with each of capecitabine and CI5FU. A decision analytic model was then used to compare potential clinical adverse events with the respective agents. Clinical probabilities were derived from published studies and the management of adverse events costed using Australian refined diagnosis-related group (AR-DRG) coding. The results of the decision analytic model were integrated with the drug administration costs to produce an inclusive discriminating cost for capecitabine versus CI5FU. Results: The total cost to the Australian healthcare system for the administration of CI5FU was $2,110 per patient, compared with $1,170 for capecitabine. The costs of managing treatment complications were similar: mean $174 per patient for CI5FU and $72 for capecitabine. The integrated discriminating cost difference was a mean saving of $1,042 per patient with prescription of capecitabine. The presented base-case model utilised higher capecitabine costs where input data could vary, and hence in all sensitivity analyses capecitabine continued to demonstrate cost savings (minimum $286 and maximum $1,975 per patient) over CI5FU. Conclusions: Capecitabine is a cost effective alternative to CI5FU. Considering also the expected lower indirect costs with oral therapy, use of capecitabine in chemoradiotherapy for rectal cancer is economically superior.