AIMS: National screening programmes for diabetic retinopathy using digital photography and multi-level manual grading systems are currently being implemented in the UK. Here, we assess the cost-effectiveness of replacing first level manual grading in the National Screening Programme in Scotland with an automated system developed to assess image quality and detect the presence of any retinopathy. METHODS: A decision tree model was developed and populated using sensitivity/specificity and cost data based on a study of 6722 patients in the Grampian region. Costs to the NHS, and the number of appropriate screening outcomes and true referable cases detected in 1 year were assessed. RESULTS: For the diabetic population of Scotland (approximately 160,000), with prevalence of referable retinopathy at 4% (6400 true cases), the automated strategy would be expected to identify 5560 cases (86.9%) and the manual strategy 5610 cases (87.7%). However, the automated system led to savings in grading and quality assurance costs to the NHS of 201,600 pounds per year. The additional cost per additional referable case detected (manual vs automated) totalled 4088 pounds and the additional cost per additional appropriate screening outcome (manual vs automated) was 1990 pounds. CONCLUSIONS: Given that automated grading is less costly and of similar effectiveness, it is likely to be considered a cost-effective alternative to manual grading.