Each year, about 1,600 infants in the United States are infected with neonatal herpes simplex virus. We conducted a cost-effectiveness analysis of antiviral drug therapy (acyclovir) for three forms of herpes simplex virus infection: skin, ear, and mouth (SEM), central nervous system (CNS), and disseminated multiorgan (DIS) disease. Five levels of patient outcomes were examined (normal, mild, moderate, severe, dead). We obtained information on disease occurrence and survival from clinical trials and historical reviews of untreated newborns. We considered approaches for treating all or any of the forms of the disease and compared them with no use of antiviral drugs. The main measure of effectiveness was lives saved, including those of descendants of survivors. Costs were measured from a societal perspective and included direct medical costs, institutional care, and special education. We used a discount rate of 3% and valued dollars at 1995 levels. We also considered the perspective of a managed care organization. From a societal viewpoint relative to no treatment, antiviral therapy for SEM resulted in a gain of 0.8 lives and a cost reduction of $78,601 per case. For the treatment of CNS and DIS disease, antiviral therapy saved more lives but at increased cost, with respective marginal costs per additional life saved of $75,125 and $46,619. From a managed care perspective, antiviral therapy is more cost-effective than from a societal viewpoint because costs of institutional care and special education are not the responsibility of managed care organizations. Development of at-home therapies will further improve the cost-effectiveness of antiviral therapy for neonatal herpes simplex virus infection.