Vegetarian diets and lifestyle have been shown to reduce the risk of many chronic non-communicable diseases, which now accounts for the major global burden of diseases. We aimed to determine the contribution of vegetarian diets and lifestyle to the actual direct medical cost in a population-based study. Through linkage to the National Health Insurance Research Database of Taiwan, we compared the health care utilization and medical expenditure of 2166 vegetarians and 4332 age-sex-matched omnivores recruited from the Buddhist Tzu Chi Foundation. Diet and lifestyle questionnaires were self-administered and prospectively collected. We used the general linear model to estimate the 5-year average medical expenditure in vegetarians versus omnivores while adjusting for age, sex, education, exercise habits, smoking, and alcohol drinking. Medical expenses related to non-diet associated lifestyle factors (smoking, alcohol drinking, active community volunteering, and religious emotional support) were estimated through a comparison with the published population medical cost data standardized to match the age and sex characteristics of the cohort. Tzu Chi vegetarians had significantly lower outpatient visits. This translated into 13% lower outpatient ( = 0.007) and 15% lower total medical expenditures ( = 0.008) when compared with the Tzu Chi omnivores, who had an additional 10% lower medical expenditure when compared with the general population. No difference in dental visits and expenses were found between diet groups. Vegetarian diets are associated with significantly lower medical care expenditure and could be an effective strategy to alleviate the medical-economic burden in selected populations.