Objective To compare the cost‐effectiveness of surgery and topical steroids as treatments for phimosis (defined as a clinically verifiable, pathological, cicatricial stenosis of the prepuce) and to evaluate the financial basis of these treatments. Methods Data on treatment using topical steroids was obtained from published reports and those for circumcision from claims by private hospitals for children < 13 years old registered at the health insurance department of our facility. The estimate of the French national financial cost of the treatments for 1998 was calculated from public and private institutional information. Results Treatment with topical steroids for 4–8 weeks was successful in ≈ 85% of patients (mean age 5 years) and had no side‐effects; the remaining 15% were treated by circumcision. Topical steroid therapy costs (in French francs) F 360 per patient. For those primarily treated by circumcision (81 boys, mean age 4.3 years) and diagnosed as having phimosis, the cost was F 3330 per patient in the private sector. The total number of circumcisions performed in France, regardless of sector (public or private) for 1998 was estimated to be 51 080, which represents an annual cost of F 195.7 million. Conclusion As topical pharmacological treatment avoids the disadvantages, trauma and potential complications of penile surgery, including anaesthesia‐related risks, the use of topical steroids as a primary treatment appears to be justified in boys with clinically verifiable phimosis. This treatment could reduce costs by 75%, which represents a potential annual saving of ≈ F 150 million.