Objective To explore the cost-effectiveness of parenteral artesunate for the treatment of severe malaria in children and its potential impact on hospital budgets. Methods The costs of inpatient care of children with severe malaria were assessed in four of the 11 sites included in the African Quinine Artesunate Malaria Treatment trial, conducted with over 5400 children. The drugs, laboratory tests and intravenous fluids provided to 2300 patients from admission to discharge were recorded, as was the length of inpatient stay, to calculate the cost of inpatient care. The data were matched with pooled clinical outcomes and entered into a decision model to calculate the cost per disability-adjusted life year (DALY) averted and the cost per death averted. Findings The mean cost of treating severe malaria patients was similar in the two study groups: 63.5 United States dollars (US$) (95% confidence interval, CI: 61.7-65.2) in the quinine arm and US$ 66.5 (95% CI: 63.7-69.2) in the artesunate arm. Children treated with artesunate had 22.5% lower mortality than those treated with quinine and the same rate of neurological sequelae: (artesunate arm: 2.3 DALYs per patient; quinine arm: 3.0 DALYs per patient). Compared with quinine as a baseline, artesunate showed an incremental cost per DALY averted and an incremental cost per death averted of US$ 3.8 and US$ 123, respectively. Conclusion Artesunate is a highly cost-effective and affordable alternative to quinine for treating children with severe malaria. The budgetary implications of adopting artesunate for routine use in hospital-based care are negligible.