BACKGROUND: Disparities in health status between Aboriginal and Torres Strait Islander peoples and the total Australian population have been documented in a fragmentary manner using disparate health outcome measures. METHODS: We applied the burden of disease approach to national population health datasets and Indigenous-specific epidemiological studies. The main outcome measure is the Indigenous health gap, i.e. the difference between current rates of Disability-Adjusted Life Years (DALYs) by age, sex and cause for Indigenous Australians and DALY rates if the same level of mortality and disability as in the total Australian population had applied. RESULTS: The Indigenous health gap accounted for 59% of the total burden of disease for Indigenous Australians in 2003 indicating a very large potential for health gain. Non-communicable diseases explained 70% of the health gap. Tobacco (17%), high body mass (16%), physical inactivity (12%), high blood cholesterol (7%) and alcohol (4%) were the main risk factors contributing to the health gap. While the 26% of Indigenous Australians residing in remote areas experienced a disproportionate amount of the health gap (40%) compared with non-remote areas, the majority of the health gap affects residents of non-remote areas. DISCUSSION: Comprehensive information on the burden of disease for Indigenous Australians is essential for informed health priority setting. This assessment has identified large health gaps which translate into opportunities for large health gains. It provides the empirical base to determine a more equitable and efficient funding of Indigenous health in Australia. The methods are replicable and would benefit priority setting in other countries with great disparities in health experienced by Indigenous peoples or other disadvantaged population groups.