Recent research and media reports have suggested that obstetric early discharge is not cost-effective for postnatal care in the Australian health care system, based on the work of the Centre for Health Economic Research and Evaluation. This is probably an erroneous conclusion because the centre excludes the important cost category of medical costs, and its conclusions depend on survey estimates of 'community costs' which are empirically of poor quality and theoretically of doubtful relevance to health care system decision-making. This study finds that obstetric early discharge is more cost-effective than a traditional hospital stay even when community costs are included; and highly cost-effective when considering health system costs alone. Further cost advantages are simulated by increasing obstetric early discharge program activity and reducing length of stay for both programs. Our results suggest that safe, cost-effective options for low-risk obstetric care deserve further investigation in Australia.