Type 2 diabetes (T2DM) is a burdensome condition for individuals to live with and an increasingly costly condition for health services to treat. Cost-effective treatment strategies are required to delay the onset and slow the progression of diabetes related complications. The Diabetes Telephone Coaching Study (DTCS) demonstrated that telephone coaching is an intervention that may improve the risk factor status and diabetes management practices of people with T2DM. Measuring the cost effectiveness of this intervention is important to inform funding decisions that may facilitate the translation of this research into clinical practice. The purpose of this study is to assess the cost-effectiveness of telephone coaching, compared to usual diabetes care, in participants with poorly controlled T2DM. A cost utility analysis was undertaken using the United Kingdom Prospective Diabetes Study (UKPDS) Outcomes Model to extrapolate outcomes collected at 6 months in the DTCS over a 10 year time horizon. The intervention's impact on life expectancy, quality-adjusted life expectancy (QALE) and costs was estimated. Costs were reported from a health system perspective. A 5 % discount rate was applied to all future costs and effects. One-way sensitivity analyses were conducted to reflect uncertainty surrounding key input parameters. The intervention dominated the control condition in the base-case analysis, contributing to cost savings of $3327 per participant, along with non-significant improvements in QALE (0.2 QALE) and life expectancy (0.3 years). The cost of delivering the telephone coaching intervention continuously, for 10 years, was fully recovered through cost savings and a trend towards net health benefits. Findings of cost savings and net health benefits are rare and should prove attractive to decision makers who will determine whether this intervention is implemented into clinical practice. ACTRN12609000075280.