Recurrent hepatitis C virus (HCV) infection is a major cause of morbidity and mortality after liver transplantation for HCV-related end stage liver disease. Although previous studies have shown a short-term effect of interferon-based treatment on fibrosis progression, it is unclear whether this translates to improved graft survival. We evaluated whether treatment of recurrent HCV leads to an improved graft survival. Cohort study included consecutive HCV patients who underwent liver transplantation between 1 January 1995 and 1 January 2005 in the Mayo Clinic, Rochester, MN. Two hundred and fifteen patients were included in the study. During a median follow-up of 4.4 years (interquartile range 2.2–6.6), 165 patients (77%) had biopsy-proven recurrent HCV infection confirmed by serum HCV RNA testing. Seventy-eight patients were treated. There were no differences in MELD-score, fibrosis stage or time towards HCV recurrence between treated and untreated patients at time of recurrence. There was a trend for greater frequency of acute cellular rejection among untreated patients. The incidence of graft failure was lower for patients treated within 6 months of recurrence compared to patients not treated within this time-period (log rank p = 0.002). Time-dependent multivariate Cox regression analysis showed that treatment of recurrent HCV infection was statistically significantly associated with a decreased risk of overall graft failure (hazard ratio 0.34; CI 0.15–0.77, p = 0.009) and a decreased risk of graft failure due to recurrent HCV (hazard ratio 0.24; CI 0.08–0.69, p = 0.008). In conclusion, although a cause and effect relationship cannot be established, treatment of recurrent HCV infection after liver transplantation is associated with a reduced risk of graft failure.