This study was performed to compare the efficacy, cost-effectiveness, and safety of general, regional, and local anesthesia when performing outpatient knee arthroscopy. The study consisted of two portions. A retrospective review of 256 outpatient knee arthroscopies was performed. The types of anesthesia used were general endotracheal, regional (epidural or spinal), and local. Comparisons were made between operative procedure, anesthesia procedure time, need for supplemental anesthesia, recovery room time and cost, pharmaceutical cost, and complications. A prospective study consisted of 100 consecutive outpatient knee arthroscopies performed using local anesthesia. Data identical to the retrospective portion were obtained. Visual analog scales were used in a patient questionnaire completed at the first postoperative visit to assess patient satisfaction with local anesthesia. The retrospective data showed similar demographics and operative procedures performed in the three study groups. The difference between operative time and total anesthetic time for the local group was 35 minutes less than for regional, and 23 minutes less than for the general group. These differences were statistically significant (P < or = .05). Total pharmaceutical cost was significantly less for the local group (P < or = .05). Recovery room cost for the local anesthesia group averaged $134 compared with $450 for regional and $527 for general. This difference was significant (P < or = .05). There were 19 complications with general anesthesia, 16 with regional anesthesia, and 2 with local. There were two regional and two local cases that needed subsequent general anesthesia. The prospective data showed nearly identical time and cost data. The patient questionnaire showed nearly universal acceptance and satisfaction with the use of local anesthesia. The use of local anesthesia for outpatient knee arthroscopy is safe, effective, and well accepted. The use of local anesthesia was shown to save a minimum of $400 per case compared with the other anesthetic methods studied.