The prevalence of chronic hepatitis C infection in U.S. prisons is 12% to 31%. Treatment of this substantial portion of the population has been subject to much controversy, both medically and legally. Studies have demonstrated that treatment of chronic hepatitis C with pegylated interferon (PEG IFN) and ribavirin is a cost-effective measure in the general population; however, no study has addressed whether the same is true of the prison population. The aim of this study was to determine the cost-effectiveness of hepatitis C treatment with PEG IFN and ribavirin in the U.S. prison population. Cost-effectiveness was determined via a decision analysis model employing Markov simulation. The cohort of prisoners had a distribution of genotypes and stages of fibrosis in accordance with prior studies evaluating inmate populations. The probability of transitioning from one health state to another, reinfection rates, in-prison and out-of-prison mortality rates, sustained viral response rates, costs, and quality of life weights were also obtained from the literature. Sensitivity analysis was performed. In a strategy without a pretreatment liver biopsy, treatment was cost-effective for all ages and genotypes. This model was robust to rates of disease progression, mortality rates, reinfection rates, sustained viral response rates, and costs. In a strategy employing a pretreatment liver biopsy, treatment was also cost-saving for prisoners of all ages and genotypes with portal fibrosis, bridging fibrosis, or compensated cirrhosis.