PURPOSE Lung cancer is a major source of morbidity, mortality, and health care costs in the developed and developing world. It is estimated that lung cancer is responsible for 20% of all cancer care costs. Concerns exist that this expenditure is associated with questionable benefits. DESIGN The economic literature that relates to smoking was reviewed, followed by a summary of the economics of the diagnosis, treatment, and palliation of lung cancer. Methodologic considerations are also discussed in this section. RESULTS Published studies suggest that the increased lifetime health care costs from smoking-related illnesses in smokers are partially or fully offset by the higher medical costs that result from increased longevity in nonsmokers. However, lost productivity costs, which result from morbidity and early mortality among smokers, result in an overall net cost of smoking to society. Discounting rates of 3% to 5% do not substantively alter these results. The per-patient cost to treat lung cancer is substantial. The major cost center is hospitalization; palliative or terminal treatment is associated with significant costs. Savings can be obtained through the judicious use of diagnostic and staging procedures. Furthermore, combined modality treatment approaches and the palliative use of combination chemotherapy appear to be associated with acceptable cost-effectiveness compared with commonly used therapies for other diseases. CONCLUSION Although the increased medical care costs of treating smoking-related diseases are somewhat offset by the higher medical care costs due to increased longevity in nonsmokers, the lost productivity that results from smoking results in a net cost to society. Standard approaches to the management of lung cancer are associated with cost-effectiveness similar to that of other commonly used medical interventions.