Economic evaluations in cancer have become increasingly important because of the rising incidence of the disease and the proliferation of effective therapies. The aging of the population and the increasing costs of care make it even more important to identify those treatments of greatest value from both an effectiveness and cost perspective. Economic research can be conducted at the "macro" level where estimates of cost are made at the population level or at the "micro" level where the costs of specific strategies are evaluated. This paper reviews the types of economic evaluations and the classification of costs in these evaluations. In all economic evaluations, several key elements need to be considered. These are discussed in the manuscript and include the alternatives being compared, the perspective of the analysis and the outcomes being measured. Because of the many variables included in an economic analysis, there is real potential for bias to be introduced. The importance of transparency in the presentation of data and the need for sensitivity analyses to determine the robustness of the conclusions are aspects of economic analyses that readers must understand in order to interpret the reported results. The application of the information in an economic evaluation to a specific clinical situation must be interpreted in the light of the health care costs and system of care delivery from which the study results were derived. Similarly, the cost-effectiveness of a particular treatment intervention may be considered in relation to the cost-effectiveness of other interventions in a league table, but such comparisons are often flawed. The reasons for this are discussed. Economic evaluations in oncology will be increasingly important in making choices between expensive new treatments, but great care must be exercised in the interpretation of individual reports.