OBJECTIVE: To assess and compare health care costs for normal-weight, overweight and obese Australians. DESIGN, SETTING AND PARTICIPANTS: Analysis of 5-year follow-up data from the Australian Diabetes, Obesity and Lifestyle study, collected in 2004-2005. Data were available for 6140 participants aged >or= 25 years at baseline. MAIN OUTCOME MEASURES: Direct health care cost, direct non-health care cost and government subsidies associated with overweight and obesity, defined by both body mass index (BMI) and waist circumference (WC). RESULTS: The annual total direct cost (health care and non-health care) per person increased from $1472 (95% CI, $1204-$1740) for those of normal weight to $2788 (95% CI, $2542-$3035) for the obese, however defined (by BMI, WC or both). In 2005, the total direct cost for Australians aged >or= 30 years was $6.5 billion (95% CI, $5.8-$7.3 billion) for overweight and $14.5 billion (95% CI, $13.2-$15.7 billion) for obesity. The total excess annual direct cost due to overweight and obesity (above the cost for normal-weight individuals) was $10.7 billion. Overweight and obese individuals also received $35.6 billion (95% CI, $33.4-$38.0 billion) in government subsidies. Comparing costs by weight change since 1999-2000, those who remained obese in 2004-2005 had the highest annual total direct cost. Cost was lower in overweight or obese people who lost weight or reduced WC compared with those who progressed to becoming, or remained, obese. CONCLUSION: The total annual direct cost of overweight and obesity in Australia in 2005 was $21 billion, substantially higher than previous estimates. There is financial incentive at both individual and societal levels for overweight and obese people to lose weight and/or reduce WC.