This study compared the costs and effects of insecticide (permethrin)-treated bed net (ITN) use in children less than five years of age in an area of intense, perennial malaria transmission in western Kenya. The data were derived from a group-randomized controlled trial of ITNs conducted between 1996 and 1999. The annual net cost per life-year gained was 34 U.S. dollars and the net annual cost per all-cause sick child clinic visit averted was 49 U.S. dollars. After taking into account a community effect (protection from malaria afforded to non-ITN users who lived within 300 meters from users) these estimates decreased to 25 U.S. dollars and 38 U.S. dollars, respectively. This study provides further evidence that ITNs are a highly cost-effective use of scarce health care resources.