Objective To assess the cost-effectiveness of sensor-augmented insulin pump therapy with "Low Glucose Suspend" (LGS) functionality versus standard pump therapy with self-monitoring of blood glucose in patients with type 1 diabetes who have impaired awareness of hypoglycemia. Methods A clinical trial-based economic evaluation was performed in which the net costs and effectiveness of the two treatment modalities were calculated and expressed as an incremental cost-effectiveness ratio (ICER). The clinical outcome of interest for the evaluation was the rate of severe hypoglycemia in each arm of the LGS study. Quality-of-life utility scores were calculated using the three-level EuroQol five-dimensional questionnaire. Resource use costs were estimated using public sources. Results After 6 months, the use of sensor-augmented insulin pump therapy with LGS significantly reduced the incidence of severe hypoglycemia compared with standard pump therapy (incident rate difference 1.85 [0.17-3.53]; P = 0.037). Based on a primary randomized study, the ICER per severe hypoglycemic event avoided was $18,257 for all patients and $14,944 for those aged 12 years and older. Including all major medical resource costs (e.g., hospital admissions), the ICERs were $17,602 and $14,289, respectively. Over the 6-month period, the cost per quality-adjusted life-year gained was $40,803 for patients aged 12 years and older. Conclusions Based on the Australian experience evaluating new interventions across a broad range of therapeutic areas, sensor-augmented insulin pump therapy with LGS may be considered a cost-effective alternative to standard pump therapy with self-monitoring of blood glucose in hypoglycemia unaware patients with type 1 diabetes. © 2014 International Society for Pharmacoeconomics and Outcomes Research (ISPOR).