Pulmonary rehabilitation has been demonstrated to be efficacious in chronic obstructive pulmonary disease (COPD), however, its cost-effectiveness is largely unknown. The present study determined the cost-effectiveness of a community-based pulmonary rehabilitation program for COPD patients with mild, moderate, and severe disease. We compared the direct costs (in Canadian dollars) and disease-specific quality of life (measured by the St. George's Respiratory Questionnaire, SGRQ) of patients with COPD (N = 210) who enrolled in the rehabilitation program in Edmonton, Canada one year before and after completion of the program. To determine temporal trends in health service utilization between 2000 and 2002 we used similar data from 592 COPD patients from the same region who did not participate in the rehabilitation program. We found that the health status of patients enrolled in the program improved significantly following pulmonary rehabilitation, irrespective of the severity of disease (total SGRQ score improved by 4.85%, p = 0.001). The total direct cost per 100 person-years of follow-up before the program was $122,071 (SE = 29,566); after the program it was $87,704 (SE = 26,146). The average reduction of total costs before and after the program was $34,367 per 100 person-years or approximately $344 per person per year (p = 0.02). Over one-year, pulmonary rehabilitation was associated with decreased health service utilization, reduced direct costs and improved health status of COPD patients. This suggests that pulmonary rehabilitation is cost-effective for patients with relatively high utilization of emergency and hospital-based services.