Background.After licensing of a varicella vaccine in Canada in 1998, Health Canada commissioned a study to evaluate options for a vaccination program. The evaluation of a program of vaccination of 12-month-old children, with and without a catch-up program for susceptible 12-year-olds, is presented here.Methods.An economic model was developed simulating the expected experience, with and without vaccination, of cohorts of children susceptible to varicella. The cohorts were simulated for 70 years, and infection and complication rates were calculated along with the attendant costs, with an assumed vaccine cost of $60.Results.With an 85% coverage rate vaccination is expected to reduce the number of chickenpox cases by approximately two-thirds and varicella-related complications by up to 75%. The overall costs of varicella are expected to drop by >$4 million (1998 Canadian dollars) per 100 000 eligible vaccinees, but costs to the health care system are expected to increase by >$2 million. From the health care system perspective, vaccination would cost ∼$42 per discounted case avoided.Interpretation.Routine varicella vaccination would likely substantially reduce the overall costs of managing chickenpox but would result in an increase in health care expenditures. These findings are consistent with evaluations in other countries.