Although magnetic resonance (MR) imaging has been established as an accurate diagnostic modality for knee pathology, the cost-effectiveness of this test is not known. In this investigation, we formulated a mathematical equation to assess cost-effectiveness and then used this formula to evaluate the use of knee MR as a diagnostic modality in acute knee injuries. We analyzed 105 consecutive MR scans performed at an imaging center with a diverse referral base, and identified 63 patients who had had symptoms for less than 6 months. Based on average regional medical costs, we calculated that diagnostic arthroscopy is more cost-effective than MR if 78% of the scanned patients eventually undergo arthroscopy. In our study population, 87% had arthroscopy after the MR scan. Therefore, in this patient cohort representing a diverse orthopedic community, arthroscopy alone would have been more cost-effective. Careful analysis in this type of cost-benefit framework would be beneficial and may lead to the establishment of objective criteria by which MR can be used in the most cost-effective manner.