BACKGROUND: Not all patients with histologically mild chronic hepatitis C progress to cirrhosis. OBJECTIVE: To compare no antiviral treatment, periodic liver biopsy with subsequent antiviral treatment for moderate hepatitis or cirrhosis, and immediate antiviral therapy. DESIGN: Cost-effectiveness analysis. DATA SOURCES: Clinical trial data and published studies. TARGET POPULATION: Hepatitis C virus-infected patients with histologically mild hepatitis. TIME HORIZON: Lifetime. PERSPECTIVE: Societal. INTERVENTION: Immediate combination antiviral treatment or biopsy every 3 years plus combination antiviral therapy for moderate hepatitis or cirrhosis. OUTCOME MEASURES: Life expectancy, quality-adjusted life expectancy, and costs. RESULTS OF BASE-CASE ANALYSIS: Over 20 years, biopsy every 3 years with treatment of moderate hepatitis would avoid treatment in 50% of the cohort and would result in an 18% likelihood of cirrhosis compared with 16% for immediate treatment and 27% for no antiviral therapy. Immediate antiviral treatment should increase life expectancy by 1.0 quality-adjusted life-year compared with biopsy management. Over an average lifetime, biopsy management would lead to six liver biopsies costing $6200; immediate antiviral treatment would cost $5100 less than biopsy management because of savings related to biopsy and prevention of future hepatitis C-related morbidity. Immediate therapy was cost-effective compared with biopsy management and had a cost-effectiveness ratio of $7000 compared with no antiviral therapy. RESULTS OF SENSITIVITY ANALYSIS: When age, sex, genotype, and estimates of histologic progression or compliance with follow-up are varied, immediate therapy should result in an increase of at least 0. 8 quality-adjusted life-year compared with biopsy management. CONCLUSION: For histologically mild chronic hepatitis C, initial combination treatment compared with periodic liver biopsy should reduce the future risk for cirrhosis, prolong life, and be cost-effective.