The costs and consequences of donepezil versus placebo treatment in patients with mild to moderate Alzheimer’s disease (AD) were evaluated as part of a 1-year prospective, double-blind, randomized, multinational clinical trial. Patients received either donepezil (n = 142; 5 mg/day for 28 days followed by 10 mg/day according to the clinician’s judgement) or placebo (n = 144). Unit costs were assessed in 1999 Swedish kronas (SEK) and converted to US dollars (USD). Donepezil-treated patients gained functional benefits relative to placebo on the Progressive Deterioration Scale (p = 0.042) and Instrumental Activities of Daily Living scale (p = 0.025) at week 52. Caregivers of donepezil-treated patients spent an average of 400 h less annually providing care than caregivers of placebo-treated patients. Mean annual healthcare costs were SEK 137,752 (USD 16,438) per patient for the donepezil group and SEK 135,314 (USD 16,147) in the placebo group. With the average annual cost of donepezil at SEK 10,723 (USD 1,280) per patient, the SEK 2,438 (USD 291) cost difference represented a 77% cost offset. When caregiver time and healthcare costs were included, mean annual costs were SEK 209,244 (USD 24,969) per patient in the donepezil group and SEK 218,434 (USD 26,066) in the placebo group, a total saving associated with donepezil treatment of SEK 9,190 (USD 1,097) per patient [95% CI of SEK –43,959 (USD –5,246), SEK 25,581 (USD 3,053); p = 0.6]. The positive effects on the efficacy outcome measures combined with no additional costs from a societal perspective indicate that donepezil is a cost-effective treatment, representing an improved strategy for the management of patients with AD.