Objective. To determine the cost-effectiveness of pharmacokinetic dosage adjustment of vancomycin to prevent nephrotoxicity. An analysis was performed for subpopulations of patients receiving nephrotoxic agents (aminoglycosides, amphotericin, and acyclovir), those in the intensive care unit, and those on the oncology service. Methods. Decision analysis was used to model the cost-effectiveness of pharmacokinetic dosage adjustment of vancomycin. The reference case was determined, in part, by a retrospective review of 200 patients randomly selected from our clinical pharmacology consultation service. Patients were aged 18 years or older and had received intravenous vancomycin for at least 48 hours, with at least two-one peak and one trough-vancomycin serum concentrations obtained during therapy. Results of published clinical trials were used to determine the probability of vancomycin-induced nephrotoxicity. Results. The mean cost of treating nephrotoxicity was $11,233 at our institution. The mean cost for all patients was $25,166 (sensitivity analysis $15,000-27,500)/nephrotoxic episode prevented. The subgroup analysis revealed a cost of $8363 (sensitivity analysis $4368-10,500)/nephrotoxic episode prevented in intensive care patients, $5000 (sensitivity analysis $1687-13,250) in oncology patients, and a dominant strategy showing a cost savings of $5564 (sensitivity analysis $2724-12,428) in those receiving concomitant nephrotoxins. Conclusion. Although pharmacokinetic monitoring and dosage adjustment are effective methods for reducing the toxicity of many drugs, controversy exists regarding the necessity of such monitoring with vancomycin. Evaluation by decision analysis over a range of assumptions, varying probabilities, and costs reveals that pharmacokinetic monitoring and vancomycin dosage adjustment to prevent nephrotoxicity are not cost-effective for all patients. However, such dosage adjustment demonstrates cost-effectiveness for patients receiving concomitant nephrotoxins, intensive care patients, and probably oncology patients.