Cost utility analysis is the preferred method of analysis when quality of life instead is an important outcome of the project being appraised. However, there are several methodological issues to be resolved in implementing cost utility analysis, including whether to use generalised measures or direct disease specific outcome assessment, the choice of measurement technique, and the combination of different health states. Screening for breast cancer meets this criterion as mammographic screening has been shown to reduce mortality; and it is said that earlier treatment frequently results in less radical surgery so that women are offered the additional benefit of improved quality of life. Australia, like many other countries, has been debating whether to introduce a national mammographic screening programme. This paper presents the results of a cost utility analysis of breast cancer screening using an approach to measuring outcome, Healthy Year Equivalents, developed within this study to resolve these problems. Descriptions of breast cancer quality of life were developed from surveys of women with breast cancer, health professionals and the published literature. The time trade off technique was then used to derive values for breast cancer treatment outcomes in a survey of women in Sydney, Australia. Respondents included women with breast cancer and women who had not had breast cancer. Testing of (i) the effect of prognosis on the value attached to a health scenario; and (ii) whether the value attached to a health scenario remains constant over time has been reported. The estimate of the net costs of screening are reported. The costs of breast cancer screening include the screening programme itself, the further investigations and the subsequent treatment of breast cancer cases. Breast cancer is treated in the absence of screening, many commentators claim earlier treatment is costly but there is little evidence. Therefore we have investigated current patterns of breast cancer treatment, current use of investigations for women presenting with symptoms and current use of covert mammography screening. The results are extrapolated to obtain estimates of the costs and outcomes presented as cost per healthy year equivalent. This analysis produces important information for the Australian policy debate over mammography. It also contributes to the development of cost utility analysis and the approach developed here can be applied more generally.