Background: Depression, one of the most frequent mental disorders, affects more than 350 million people of all ages worldwide, with China facing an increased prevalence of depression. Childhood depression is on the rise; globally, and in China. This study estimates the hospitalization costs and the financial burden on families with children suffering from depression and recommends strategies both to improve the health care of children with depression and to reduce their families’ financial burden. Methods: The data were obtained from the hospitalization information system of 297 general hospitals in six regions of Shandong Province, China. We identified 488 children with depression. The information on demographics, comorbidities, medical insurance, hospitalization costs and insurance reimbursements were extracted from the hospital’s information systems. Descriptive statistics were presented, and regression analyses were conducted to explore the factors associated with hospitalization costs. STATA14 software was used for analysis. Results: The mean age of children with depression was 13.46 ± 0.13 years old. The availability of medical insurance directly affected the hospitalization costs of children with depression. The children with medical insurance had average total hospitalization expenses of RMB14528.05RMB (US$2111.91) and length of stay in hospital of 38.87 days compared with the children without medical insurance of hospital with expenses of RMB10825.55 (US$1573.69) and hospital stays of 26.54 days. Insured children’s mean out-of-pocket expenses (6517.38RMB) was lower than the those of uninsured children (RMB10825.55 or US$1573.69), significant at 0.01 level. Insured children incurred higher treatment costs, drug costs, bed fees, check-up fees, test costs and nursing fees than uninsured patients (p < 0.01). Conclusions: Children suffering from depression with medical insurance had higher hospitalization costs and longer hospitalization stays than children without medical insurance. While uninsured inpatients experienced larger out-of-pocket costs than insured patients, out-of-pocket hospital expenses strained all family budgets, pushing many, especially low-income, families into poverty—insured or uninsured. The different hospital cost structures for drugs, treatment, bed fees, nursing and other costs, between insured and uninsured children with depression, suggest the need for further investigations of treatment regimes, including over-demand by parents for treatment of their children, over-supply of treatment by medical staff and under-treatment of uninsured patients. We recommend more careful attention paid to diagnosing depression in girls and further reform to China’s health insurance schemes—especially to allow migrant families to gain basic medical insurance.