To determine hepatitis C incidence and the demographic and behavioural predictors in seronegative drug injecting prisoners. Prisoners in New South Wales, Australia who: were aged 18 years and over; reported IDU; had been continuously imprisoned; had a documented negative HCV antibody test result in prison in the last 12 months; provided written informed consent. Subjects were interviewed about their demographic characteristics and detailed risk factors for transmission prior to, and since, imprisonment. A blood sample was collected to screen for HCV antibodies by ELISA and RNA by PCR. Of 253 inmates recruited, 120 were continuously imprisoned and included in this analysis. Sixteen acquired HCV infection indicating an incidence of 34.2 per 100 person years (CI: 19.6-55.6). Risk factors for transmission included prior imprisonment, methadone treatment and greater than 10 years of education. Although the frequency of injecting was reduced in prison, 33.6% continued to inject drugs, most commonly methamphetamine, and 90% of these reported sharing injecting equipment. Prison inmates were at high risk of HCV infection, despite some reduction in high-risk behaviours and access to prevention services. To prevent HCV transmission in prisons, better prevention strategies are required.