Short courses (6 months) of interferon (IFN) are highly cost-effective in patients with histologically mild chronic hepatitis C. However, IFN treatment lasting 12–24 months is now the standard of care. We utilized a previously published and validated model of the natural history of chronic hepatitis C and the treatment outcomes from two large multicentre treatment trials of IFN-α2b, given for 6 months or 18–24 months, to estimate the incremental cost-effectiveness of prolonged IFN treatment in patients with histologically mild chronic hepatitis C (formerly chronic persistent or mild chronic active hepatitis). In the two treatment trials, pooled analysis of the patients with mild hepatitis showed that 36.4% of them normalized serum alanine aminotransferase and remained virus negative (sustained response) after completing an 18–24 month course of IFN vs 15.3% for a 6-month course and no response in the absence of treatment. The model then estimated that for patients aged 20–50 years, the discounted marginal cost per year of life gained by long-term IFN treatment ranged from US $735 to US $8856, and the gain in life expectancy ranged from 4.35 years to 0.75 years, respectively, compared with an untreated age-matched cohort. Compared with treatment for only 6 months, the incremental marginal cost per life year gained by longer treatment at age 20–50 years ranged from $938 to $9957. The treatment and healthcare costs, sustained response rates and the rate of progression during early disease were identified as significant variables in sensitivity analyses. However, longer treatment always showed a survival benefit compared with 6 months of IFN or no treatment, and the cost of longer treatment is reasonable compared with that for a 6-month course.