We compared the graft survival and accumulative costs associated with sepsis and pneumonia pre- and post-transplantation. We analyzed 44 916 first kidney transplants from 1995 to 2001 USRDS where Medicare was the primary payer. We drew five cohorts for each disease from the baseline population: patients who had a disease onset in the first or second years pre-transplantation (cohorts 1 and 2) or post-transplantation (cohorts 3 and 4) and patients who were disease-free (cohort 5). For each cohort, we calculated graft survival and average accumulated Medicare payments (AAMPs) for the two pre- and post-transplantation years. Graft survival: new-onset sepsis and pneumonia both significantly (p <0.01) lowered graft survival during the year of onset. AAMPs: the AAMPs incurred by sepsis- (pneumonia-) free patients during the first and second years post-transplantation were $50 000 and 13 000 ($51 100 and 13 500), respectively. Patients with a sepsis (pneumonia) onset post-transplantation cost on average $48 400 ($38 400) extra (p<0.01). Episodes of sepsis and pneumonia have a strong and independent impact on graft survival and costs.