Abstract Aims/hypothesis Whether sodium–glucose co-transporter 2 inhibitors (SGLT2is) or glucagon-like peptide-1 receptor agonists (GLP-1 RAs) are cost-effective based solely on their cardiovascular and kidney benefits is unknown. We projected the health and economic outcomes due to myocardial infarction (MI), stroke, heart failure (HF) and end-stage kidney disease (ESKD) among people with type 2 diabetes, with and without CVD, under scenarios of widespread use of these drugs. Methods We designed a microsimulation model using real-world data that captured CVD and ESKD morbidity and mortality from 2020 to 2040. The populations and transition probabilities were derived by linking the Australian Diabetes Registry (1.1 million people with type 2 diabetes) to hospital admissions databases, the National Death Index and the ESKD Registry using data from 2010 to 2019. We modelled four interventions: increase in use of SGLT2is or GLP-1 RAs to 75% of the total population with type 2 diabetes, and increase in use of SGLT2is or GLP-1 RAs to 75% of the secondary prevention population (i.e. people with type 2 diabetes and prior CVD). All interventions were compared with current use of SGLT2is (20% of the total population) and GLP-1 RAs (5% of the total population). Outcomes of interest included quality-adjusted life years (QALYs), total costs (from the Australian public healthcare perspective) and the incremental cost-effectiveness ratio (ICER). We applied 5% annual discounting for health economic outcomes. The willingness-to-pay threshold was set at AU$28,000 per QALY gained. Results The numbers of QALYs gained from 2020 to 2040 with increased SGLT2i and GLP-1 RA use in the total population (n=1.1 million in 2020; n=1.5 million in 2040) were 176,446 and 200,932, respectively, compared with current use. Net cost differences were AU$4.2 billion for SGLT2is and AU$20.2 billion for GLP-1 RAs, and the ICERs were AU$23,717 and AU$100,705 per QALY gained, respectively. In the secondary prevention population, the ICERs were AU$8878 for SGLT2is and AU$79,742 for GLP-1 RAs. Conclusions/interpretation At current prices, use of SGLT2is, but not GLP-1 RAs, would be cost-effective when considering only their cardiovascular and kidney disease benefits for people with type 2 diabetes. Graphical abstract