This study estimates the direct health care costs of the incidence of insulin-dependent diabetes mellitus (IDDM) in Spain. A discrete event simulation model was developed to approximate the natural history of a cohort of newly diagnosed patients in a given year and used to calculate the average costs which would accumulate during the lifetime of the group of patients. The model takes into account both the underlying costs of control and maintenance of the disease plus the additional costs of long-term complications that are likely to develop as the disease progresses. The model is based on national and international epidemiological and demographic information combined with local cost data. The number of newly diagnosed cases of IDDM each year, based on Spanish epidemiological data, was calculated to be approximately 1791 cases in 1994. The baseline results from the model indicate that the average life expectancy of an IDDM patient is approximately 59.6 years with an average lifetime cost of 12.7 million pesetas per individual (1994 undiscounted values), 5.1 million pesetas per individual when discounted at a rate of 6% and 8060 million pesetas for the entire newly diagnosed cohort discounted at a rate of 6%. Sensitivity analysis was undertaken in order to observe the effect on the result of changes in the values of key variables.