OBJECTIVE: Type 2 diabetes is the main cause of end-stage renal disease (ESRD) in Europe and the USA. Angiotensin-converting enzyme (ACE) inhibitors have a potential to slow down the progression of renal disease and therefore provide a renal-protective effect. The aim of our study was to assess the most cost-effective time to start an ACE inhibitor (or an angiotensin II receptor blocker [ARB] if coughing as a side effect occurs) in patients with newly diagnosed type 2 diabetes in The Netherlands. METHODS: A lifetime Markov decision model with simulated 50-year-old patients with newly diagnosed diabetes mellitus was developed using published data on costs and health outcomes and simulating the progression of renal disease. A health insurance perspective was adopted. Three strategies were compared: treating all patients at the time of diagnosing type 2 diabetes, screening for microalbuminuria, and screening for macroalbuminuria. RESULTS: In the base-case analysis, the treat-all strategy is associated with the lowest costs and highest benefit and therefore dominates screening both for macroalbuminuria and microalbuminuria. A multivariate sensitivity analysis shows that the probability of savings is 70%. CONCLUSIONS: In The Netherlands for patients with type 2 diabetes prescription of an ACE inhibitor immediately after diagnosis should be considered if they do not have contraindications. An ARB should be considered for those patients developing a dry cough under ACE inhibitor therapy. The potential for cost savings would be even larger if the prevention of cardiovascular events were considered.