The best treatment option for children with Type 2 diabetes has not yet been established. The Treatment Options for Type 2 Diabetes in Adolescents and Youth (TODAY) study is currently testing the efficacy of three therapies: metformin, metformin plus rosiglitazone and metformin plus an intensive lifestyle intervention. The relative cost-effectiveness of these therapies is also being examined. This review discusses the rationale for the design and methods applied in the economic analysis. The design of the economic analysis in the TODAY study was influenced by the existing literature and two primary study parameters: the nature of the interventions and the participants' age. The lifestyle intervention is an intensive behavioral intervention comprising diet and physical activity. Since economic factors influence both diet and physical activity, the analytical plan includes measurement of food and exercise-related purchases. Due to the young age of the participants, the impact of the intervention on adult caregivers is also included in the analysis. This analysis focuses on the time spent by the caregivers in both medical treatment and nutrition- and activity-related activities, and the value of this time relative to usual activities. Important methodological questions include how and when to collect information, not only on medical costs, but also on the impact of caregiver time, travel, food and equipment purchases. In the TODAY study, these latter resources are being measured by regularly administered surveys completed by the caregivers. The approach to the cost-effectiveness assessment undertaken by the TODAY study is one of the first in diabetes research to focus on youth and to include a societal perspective, regular and prospective assessment of clinician and caregiver time, and a comprehensive assessment of the costs associated with lifestyle behaviors. It can serve as a model for future studies of diabetes treatments.