Investigations examining the use of magnetic resonance cholangiography (MRC) for the diagnosis of primary sclerosing cholangitis (PSC) have described comparable accuracy when compared to endoscopic retrograde cholangiopancreatography (ERCP). The effectiveness of MRC based on overall cost, however, remains unknown. Our aim was to determine the average cost per correct diagnosis using MRC or ERCP as the initial testing strategy for the diagnosis of PSC. A decision analysis model was constructed employing diagnostic test parameters prospectively determined among 73 patients with clinically suspected biliary disease. ERCP was performed within 24 hours after MRC. Cost data were derived from average Medicare reimbursement fee schedules. The prevalence of PSC in the study cohort was 32%. The sensitivity and specificity of MRC for the diagnosis of PSC were 82% and 98%, respectively. The average cost per correct diagnosis of PSC was 724.00 US dollars for initial MRC (including the cost of ERCP following a negative MRC examination) versus 793.17 US dollars for initial ERCP. In the absence of biliary obstruction, the average cost per correct diagnosis of PSC was 549.64 US dollars with MRC versus 623.25 US dollars or ERCP. The average cost of managing post-ERCP-related complications among patients with PSC was 2902.20 US dollars (range, 1915.40-5031.54 US dollars). For ERCP to be the optimal initial test strategy, a prevalence rate of PSC greater than 45%, MRC specificity less than 85%, or reduction in the average cost per diagnosis to 538.30 US dollars would be required. In conclusion, MRC has comparable accuracy to ERCP and results in cost savings when used as the initial test strategy for diagnosing PSC.