Purpose. The purpose of this study was to examine the cost-effectiveness of immediate axillary lymph node dissection (ALND) in estrogen receptor- positive women with clinically negative nodes. Methods. We constructed a Markov model comparing hypothetical cohorts of postmenopausal women who were estrogen receptor positive with clinically negative axillae. The women underwent immediate ALND or watchful waiting, with ALND performed only for those patients developing palpable axillary nodes. Recurrence risks, chemotherapeutic benefits, and treatment costs were estimated from the published literature. The main outcome measures were quality-adjusted survival and incremental cost per quality-adjusted life-year (QALY). Results. For 55-year-old women with palpable (3 cm) tumors, immediate ALND results in improved survival (10.3 versus 10.05 QALYs) and a cost-effectiveness ratio of $36,700 per QALY, if chemotherapy is given to those with histologically positive lymph nodes. The benefits of ALND are greatest for younger women with larger palpable tumors. Because of the lower risk of nodal metastases, patients with 1-cm nonpalpable tumors experience minimal benefit at markedly higher incremental costs ($308,000 per QALY). If chemotherapy will not be given to patients with histologically positive lymph nodes because of a patient's or a physician's wishes, then there is no benefit to immediate ALND in any patient subgroup. Conclusion. When the results of ALND are used to guide postoperative decisions, immediate ALND results in considerable benefit at a reasonable cost for most women with palpable tumors. Because the benefits are lower in patients with nonpalpable tumors, ALND should not be considered mandatory for that subgroup. Decisions for ALND should be based on patient age, tumor size and palpability, individual patient preferences, the likelihood of receiving postoperative chemotherapy, and other prognostic factors.