Arthritis and musculoskeletal conditions affect more than 6 million Australians. In 2004-05, direct health expenditure on these conditions amounted to $4.0 billion or 7.5% of total allocated health expenditure in Australia. Osteoarthritis alone accounted for nearly one-third of the expenditure, mostly due to hospital costs associated with knee and hip replacements. Other major sources of expenditure included prescription pharmaceuticals for osteoporosis and rheumatoid arthritis. This report provides detailed information on health expenditure on these diseases and conditions using estimates derived from the AIHW Disease expenditure database, supported by information from various other data sources.