This study was designed to assess the cost-effectiveness of erlotinib compared with docetaxel in the second-line management of advanced non-small-cell lung cancer (NSCLC) within the UK National Health Service (NHS). A health-state transition model, based on two randomized phase III studies of erlotinib or docetaxel versus best supportive care, was used to estimate total direct costs, quality-adjusted life years (QALYs) and the subsequent net monetary benefit. Erlotinib was associated with a reduction in total costs ( pound13 730 versus pound13 956) and improved outcomes (total QALYs of 0.238 versus 0.206) compared with docetaxel. Sensitivity analyses demonstrated the robustness of this analysis. In summary, erlotinib appeared to generate similar overall survival, an increase in QALYs and a small reduction in total NHS costs compared with docetaxel, due to lower adverse event and drug administration costs. Consequently, from a health economics perspective for the treatment of relapsed stage III - IV NSCLC patients in the UK, erlotinib has advantages over docetaxel.