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Background: Three district hospitals in Malawi that provide essential surgery, which for many patients can be lifesaving or prevent disability, formed the setting of this costing study. Methods: All resources used at district hospitals for the delivery of surgery were identified and quantified. The hospital departments were divided into three categories of cost centres-the final cost centre, intermediate and ancillary cost centres. All costs of human resources, buildings, equipment, medical and non-medical supplies and utilities were quantified and allocated to surgery through step-down accounting. Results: The total cost of surgery, including post-operative care, ranged from US$ 329,000 per year to more than twice that amount at one of the hospitals. At two hospitals, it represented 16-17% of the total cost of running the hospital. The main cost drivers of surgery were transport and inpatient services, including catering. The cost of a C-section ranged from $ 164 to 638 that of a hernia repair from $ 137 to 598. Evacuations from uterus were cheapest mainly because of the shorter duration of patient stay. Conclusion: Low bed occupancy rates and utilisation rates of the operating theatres suggest overcapacity but may also indicate a potential to scale up surgery. This may be achieved by adding surgical staff, although there may be rate-limiting steps, such as demand for surgery in the community or capacity to provide anaesthesia. If a scale-up of surgery cannot be realised, hospital managers may be forced to reduce the number of beds, reorganise wards and/or reallocate staff to achieve better economies of scale. [ABSTRACT FROM AUTHOR]