BACKGROUND Out‐of‐pocket and indirect (OPI) costs play an important role in prostate cancer (PCa) outcomes research. We sought to analyze OPI costs of newly diagnosed PCa patients receiving either radical prostatectomy (RP) or external beam radiation therapy (EBRT). METHODS Prospective cohort design was used to recruit 512 newly diagnosed PCa patients from urology clinics of an urban academic hospital and a Veterans Administration medical center. Participants provided demographic information and completed self‐reported generic and prostate‐specific Health Related Quality of Life (HRQoL) and indirect‐cost surveys at baseline and at 3, 6, 12, and 24 months follow‐up. Linear mixed models were applied to study the association between OPI costs, treatment and HRQoL outcomes. Propensity scores adjusted for potential confounders and Bonferroni correction was used to account for multiple testing. RESULTS Total mean OPI costs varied between RP group and EBRT group at 3‐month (5576vs. 2010), 6‐month (1776vs. 2133), 12‐month (757vs. 774), and at 24‐month follow‐up (458vs. 871). Linear mixed models indicated that RP was associated with lower medication costs (OR= 0.61, CI= 0.48–0.89) and total OPI costs (OR= 0.71, CI= 0.64–0.92). Total OPI costs were inversely related to most of the generic HRQoL items. Similarly, prostate‐specific HRQoL items of urinary function (OR= 0.72; adjusted‐CI= 0.58–0.84), bowel function (OR= 0.96; adjusted‐CI= 0.78–0.98), sexual function (OR= 0.85; adjusted‐CI= 0.72–0.92), urinary bother (OR= 0.79; adjusted‐CI= 0.67–0.83), and sexual bother (OR= 0.88; adjusted‐CI= 0.76–0.93) were inversely related to OPI costs. CONCLUSIONS OPI costs of PCa care are substantial and vary across time and treatment. Prostate 70: 1255–1264, 2010.© 2010 Wiley‐Liss, Inc.