Merino sheep were artificially infested with lice, Damalinia ovis, and the quantity and processing performance of the wool they subsequently produced was compared with those of wool from uninfested sheep. The experiment was conducted in a winter rainfall region of Western Australia, and was repeated yearly for three years. Louse infestation depressed clean wool production by 0.3-0.8 kg per sheep but did not affect live weight. This represented loss of income to the farmer of about $A0.72 to $A1.92 for each louse-infested sheep. The wool from lice-infested sheep, when processed into tops, yielded 4.8 to 7.2% less top and noil, than wool from uninfested sheep and the tops had a lower mean fibre length. This was estimated to cost the processor $A20.79 to $A32.20 per 100 kg of wool processed which originated from lice-infested sheep. Louse populations built up during winter, spring and early summer to reach maximum sizes during mid or late summer when the sheep were shorn and removed from the experiment. In one group of infested sheep retained for the duration of the experiment, louse populations declined after shearing each summer. It appeared that shearing may be more important in limiting growth of louse populations than climatic factors.