Abstract: The National Indigenous Drug and Alcohol Committee (NIDAC), a committee of the Australian National Council on Drugs (ANCD), released a position paper, ‘Bridges and Barriers: addressing Indigenous incarceration and health’, (NIDAC 2009), which identified a disproportionate number of Indigenous Australians in the correctional system, and argued the importance of diverting young men and women away from a life of substance use and crime. The report recommended that funding be redirected from the construction and operation of any further correctional system centres to establish a ‘break the cycle’ network of Indigenous-specific residential rehabilitation services for courts to utilise as a viable alternative to incarceration. In this report, Deloitte Access Economics was appointed by NIDAC to: • examine the patterns and prevalence of Indigenous people in the prison system • outline the impact and implications of incarceration of Indigenous people, and • analyse the costs and benefits of addressing Indigenous problematic alcohol and drug use with treatment, particularly residential rehabilitation, as compared to prison.