ObjectiveTo assess the cost-effectiveness of erlotinib versus supportive care (placebo) overall and within a predefined rash subgroup in elderly patients with advanced non-small-cell lung cancer who are unfit for chemotherapy and receive only active supportive care due to their poor performance status or presence of comorbidities.SettingBetween 2005 and 2009, a total of 670 patients with non-small cell lung cancer (NSCLC) were randomised across 78 hospital sites (centres) in the UK.Participants670 patients with pathologically confirmed stage IIIb-IV NSCLC, unfit for chemotherapy, predominantly poor performance status (>2 on Eastern Cooperative Oncology Group, ECOG) and estimated life expectancy of at least 8 weeks. Patients were followed until disease progression or death, including a subgroup of patients who developed first cycle rash.InterventionsPatients were randomised (1:1) to receive best supportive care plus oral placebo or erlotinib (150 mg/day) until disease progression, toxicity or death.Primary outcomeOverall survival (OS).Secondary outcomesProgression-free survival (PFS), tumour response and quality adjusted life years (QALY), including within prespecified subgroups.ResultsThe mean incremental cost per QALY in all patients was £202 571/QALY. The probability of cost-effectiveness of erlotinib in all patients was <10% at thresholds up to £100 000. However, within the rash subgroup, the incremental cost/QALY was £56 770/QALY with a probability of cost-effectiveness of about 80% for cost-effectiveness thresholds between £50 000 to £60 000.ConclusionsErlotinib has about 80% chance of being cost-effective at thresholds between £50 000–£60 000 in a subset of elderly poor performance patients with NSCLC unfit for chemotherapy who develop first cycle (28 days) rash. Erlotinib is potentially cost-effective for this population, for which few treatment options apart from best supportive care are available.Trial registration number(ISCRTN): 77383050.