OBJECTIVE: Between May and June 2002 an outbreak of chickenpox (CP) occurred at a child care centre in Perth, Western Australia. An epidemiological study was undertaken in order to determine the characteristics of the outbreak, assess vaccine effectiveness, and to define the direct and indirect costs associated with CP infections in young children. METHODS: A cohort study of the outbreak utilising attendance records and a telephone survey of parents was conducted. RESULTS: Of the 211 children attending the child care centre at the time of the outbreak, 44 contracted CP (attack rate 25.7%). In addition, two staff members, five secondary household contacts (secondary attack rate 38.5%) and four secondary non-household associated contacts were infected. There were no severe complications or any hospitalisations recorded in infected persons. Two cases had been vaccinated previously. Vaccine effectiveness for CP of any severity was 78.0% (95% CI 15.4-94.3%) while vaccine effectiveness against severe CP was 100%. Direct costs during this outbreak were estimated to be $54 per case and the total costs, including cost of parental time off work or study, were estimated to be $525.73 per case. CONCLUSIONS AND IMPLICATIONS: Although morbidity associated with CP in young children is not great, infection in childhood is almost universal. This study found that the average costs associated with each CP case were considerable. Since varicella vaccine affords good protection against CP, the recent inclusion of this vaccine in the Australian childhood vaccination schedule should save the community a considerable amount in direct and indirect costs if high coverage rates can be achieved.