In an era of fiscal restraint, it is important to evaluate the resources required to diagnose and treat serious illnesses. As breast cancer is the major malignancy affecting Canadian women, Statistics Canada has analysed the resources required to manage this disease in Canada, and the associated costs. Here we report the cost of initial diagnosis and treatment of nonmetastatic breast cancer, including adjuvant therapies. Treatment algorithms for Stages I, II, and III of the disease were derived by age group (< 50 or ≥ 50 years old), principally from Canadian cancer registry data, supplemented, where necessary, by the results of surveys of Canadian oncologists. Data were obtained on breast cancer incidence by age, diagnostic work-up, stage at diagnosis, initial treatment, follow-up practice, duration of hospitalization and direct care costs. The direct health care costs associated with ‘standard’ diagnostic and therapeutic approaches were calculated for a cohort of 17 700 Canadian women diagnosed in 1995. Early stage (Stages I and II) breast cancer represented 87% of all incident cases, with 77% of cases occurring in women ≥ 50 years. Variations were noted in the rate of partial vs total mastectomy, according to stage and age group. Direct costs for diagnosis and initial treatment ranged from $8014 for Stage II women ≥ 50 years old, to $10 897 for Stage III women < 50 years old. Except for Stage III women < 50 years old, the largest expenditure was for hospitalization for surgery, followed by radiotherapy costs. Chemotherapy was the largest cost component for Stage III women < 50 years old. This report describes the cost of diagnosis and initial treatment of nonmetastatic breast cancer in Canada, assuming current practice patterns. A second report will describe the lifetime costs of treating all stages of breast cancer. These data will then be incorporated into Statistics Canada’s Population Health Model (POHEM) to perform cost-effectiveness studies of new therapeutic interventions for breast cancer, such as the cost-effectiveness of day surgery, or of radiotherapy to all breast cancer patients undergoing breast surgery.