BACKGROUND: Little information exists on the impact of highly active antiretroviral therapy (HAART) on health-care provision in South Africa despite increasing scale-up of access to HAART and gradual reduction in HAART prices. METHODS AND FINDINGS: Use and cost of services for 265 HIV-infected adults without AIDS (World Health Organization [WHO] stage 1, 2, or 3) and 27 with AIDS (WHO stage 4) receiving HAART between 1995 and 2000 in Cape Town were compared with HIV-infected controls matched for baseline WHO stage, CD4 count, age, and socioeconomic status, who did not receive antiretroviral therapy (ART; No-ART group). Costs of service provision (January 2004 prices, US$1 = 7.6 Rand) included local unit costs, and two scenarios for HAART prices for WHO recommended first-line regimens: scenario 1 used current South African public-sector ART drug prices of $730 per patient-year (PPY), whereas scenario 2 was based on the anticipated public-sector price for locally manufactured drug of $181 PPY. All analyses are presented in terms of patients without AIDS and patients with AIDS. For patients without AIDS, the mean number of inpatient days PPY was 1.08 (95% confidence interval [CI]: 0.97-1.19) for the HAART group versus 3.73 (95% CI: 3.55-3.97) for the No-ART group, and 8.71 (95% CI: 8.40-9.03) versus 4.35 (95% CI: 4.12-5.61), respectively, for mean number of outpatient visits PPY. Average service provision PPY was $950 for the No-ART group versus $1,342 and $793 PPY for the HAART group for scenario 1 and 2, respectively, whereas the incremental cost per life-year gained (LYG) was $1,622 for scenario 1 and $675 for scenario 2. For patients with AIDS, mean inpatients days PPY was 2.04 (95% CI: 1.63-2.52) for the HAART versus 15.36 (95% CI: 13.97-16.85) for the No-ART group. Mean outpatient visits PPY was 7.62 (95% CI: 6.81-8.49) compared with 6.60 (95% CI: 5.69-7.62) respectively. Average service provision PPY was $3,520 for the No-ART group versus $1,513 and $964 for the HAART group for scenario 1 and 2, respectively, whereas the incremental cost per LYG was cost saving for both scenarios. In a sensitivity analysis based on the lower (25%) and upper (75%) interquartile range survival percentiles, the incremental cost per LYG ranged from $1,557 to $1,772 for the group without AIDS and from cost saving to $111 for patients with AIDS. CONCLUSION: HAART is a cost-effective intervention in South Africa, and cost saving when HAART prices are further reduced. Our estimates, however, were based on direct costs, and as such the actual cost saving might have been underestimated if indirect costs were also included.