In India, very few reports on the cost of adverse drug reactions (ADRs) are available. There is a need to study this aspect of health care in order to understand the economic burden imposed by ADRs. The aim of the current work was to study the costs associated with documented ADRs in a tertiary care teaching hospital. This study was conducted in medical wards of a south Indian tertiary care teaching hospital over a 6‐month period. The study protocol was assessed and approved by the institutional ethics committee. A total of 317 ADRs from 246 patients were identified during the study period. The present study used an intensive monitoring method to detect ADRs and assessed an incidence of 32.7% adverse reactions in the monitored group. The causality, severity, predictability, and preventability of the documented ADRs were assessed. The total cost to the hospital due to ADRs was found to be Rs. 1,567,397 (US$36 451). The average cost per patient hospitalized with an ADR was Rs. 4,945 (US$115). The cost per reaction was found to be higher in the Indian context, as the per capita annual expenditure on health in this country is around US$109.