Objectives. Systemic lupus erythematosus (SLE) is an autoimmune disorder that can affect any system of the body. Involvement of the kidneys, lupus nephritis (LN), affects up to 50% of SLE patients during the course of their disease, and is characterized by periods of active disease (flares) and remission. For more severe nephritis, an induction course of immunosuppressive therapy is recommended. Options include intravenous cyclophosphamide (IVC) or mycophenolate mofetil (MMF), followed by a maintenance course, typically of azathioprine. The objective of this study is to determine which therapy results in better quality of life (QoL) for patients and which represents best value for money for finite health service resources. Methods. A patient-level simulation model is developed to estimate the costs and quality-adjusted life-years (QALYs) of a patient treated with IVC or MMF for an induction period of six months. Efficacy, QoL, resource use and cost data are extracted from the literature and standard databases and supplemented with expert opinion where necessary. Results. On average, the model predicts MMF to result in improved QoL compared with IVC. MMF is also less expensive than IVC, costing pound1600 (euro2400; US$3100) less over the period, based on 2005 NHS prices. The major determinant and cost driver of this result is the requirement for a day-case procedure to administer IVC. Sensitivity analysis shows an 81% probability that MMF will be cost-effective compared with IVC at a willingness to pay of pound30 000 (euro44 700; US$58 500) per QALY gained. Conclusion. MMF is likely to result in better QoL and be less expensive than IVC as induction therapy for LN.