We modeled estimates of the incidence, deaths, and direct medical costs of Staphylococcus aureus infections in hospitalized patients in the New York City metropolitan area in 1995 by using hospital discharge data collected by the New York State Department of Health and standard sources for the costs of health care. We also examined the relative impact of methicillin-resistant versus -sensitive strains of S. aureus and of community-acquired versus nosocomial infections. S. aureus-associated hospitalizations resulted in approximately twice the length of stay, deaths, and medical costs of typical hospitalizations; methicillin-resistant and -sensitive infections had similar direct medical costs, but resistant infections caused more deaths (21% versus 8%). Community-acquired and nosocomial infections had similar death rates, but community-acquired infections appeared to have increased direct medical costs per patient ($35,300 versus $28,800). The results of our study indicate that reducing the incidence of methicillin-resistant and -sensitive nosocomial infections would reduce the societal costs of S. aureus infection.