Lenalidomide has been approved for the treatment of transfusion-dependent low- or intermediate-1-risk myelodysplastic syndromes (MDS) associated with a chromosome 5q deletion with or without additional cytogenetic abnormalities. We evaluated the cost effectiveness of lenalidomide versus best supportive care (BSC) in these patients. We developed a decision analytic model to compare costs and outcomes of lenalidomide with BSC without recombinant erythropoietin (EPO) versus BSC with EPO over 1 year. Outcome measures were transfusion independence and quality-adjusted life years (QALYs) gained. The model incorporated costs of medications, transfusions, chelation, laboratory tests, office visits, and other resources associated with each therapy. Lenalidomide therapy was associated with an estimated incremental 0.53 transfusion-free and 0.25 QALY gain compared to BSC at 1 year. The costs of lenalidomide therapy were substantially offset by reduced blood transfusion and EPO costs. One-year total treatment costs were estimated at $63,385 for lenalidomide and $54,940 for BSC. The incremental cost-effectiveness ratio for lenalidomide vs BSC was estimated at $16,066 per transfusion-free year and $35,050 per QALY gained, values within the acceptable cost-effectiveness ranges for a new therapy. Results suggest that oral lenalidomide is cost effective in the United States in the treatment of transfusion-dependent, low- or intermediate-1-risk MDS associated with a deletion 5q cytogenetic abnormality. Confirmation of these findings awaits results of an ongoing randomized phase III trial (MDS-004 study).