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This study estimates health cost of salinity contamination in drinking water in the severe salinity affected three south-western districts of Bangladesh. We collected information on self-reported health status, household characteristics, and laboratory-tested salinity concentration in drinking water from randomly selected 266 households. Our findings show that an increase in the concentration of 100 mg sodium chloride per litre in the drinking water raises annual health cost BDT 262 (USD 3.28) per household, all other things being equal. For average salinity concentration (868.26 mg L−1), we computed gross annual health cost per household BDT 2270 (USD 28.38). Limiting salt concentration at the safe level could save approximately BDT 1617 (USD 20) per household or BDT 170 (USD 2.12) million in aggregate annually, which accounts for almost 1% of their disposable income. A benefit–cost analysis shows that net present value of benefits from a 10-year project for supplying safe drinking water to the entire population is around USD 7.33 million, and thus, the study indicates financial viability of alternative supply system (pond sand filtering) to the concerned authorities. [ABSTRACT FROM AUTHOR]