Background: Lower back pain is a common and costly condition in Australia. This paper aims to conduct an economic evaluation of lumbar artificial intervertebral disc replacement (AIDR) compared with lumbar fusion for the treatment of patients suffering from significant axial back pain and/or radicular (nerve root) pain, secondary to disc degeneration or prolapse, who have failed conservative treatment. Methods: A cost-effectiveness approach was used to compare costs and benefits of AIDR to five fusion approaches. Resource use was based on Medicare Benefits Schedule claims data and expert opinion. Effectiveness and re-operation rates were based on published randomized controlled trials. The key clinical outcomes considered were narcotic medication discontinuation, achievement of overall clinical success, achievement of Oswestry Disability Index success and quality-adjusted life-years gained. Results: AIDR was estimated to be cost-saving compared with fusion overall ($1600/patient); however, anterior lumbar interbody fusion and posterolateral fusion were less costly by $2155 and $807, respectively. The incremental cost-effectiveness depends on the outcome considered and the comparator. Conclusions: AIDR is potentially a cost-saving treatment for lumbar disc degeneration, although longer-term follow-up data are required to substantiate this claim. The incremental cost-effectiveness depends on the outcome considered and the comparator, and further research is required before any firm conclusions can be drawn.