BACKGROUND: Hepatitis C virus (HCV) infection in Australia is predominantly transmitted through injecting drug use. A reduction in the heroin supply in Australia in late 2000 and early 2001 may have impacted the number of injecting drug users (IDUs) and consequently the number of new hepatitis C infections in Australia. This paper updates estimates of HCV incidence and prevalence between 1960 and 2005. METHODS: Simple mathematical models were used to estimate HCV incidence among IDUs, migrants to Australia from high HCV-prevalence countries, and other HCV exposure groups. Recent trends in numbers of IDUs were based on indicators of injecting drug use. A natural history of HCV model was applied to estimate the prevalence of HCV in the population. RESULTS: The modelled best estimate of past HCV incidence showed a consistent increasing rate of HCV infections to a peak of 14,000 new seroconversions in 1999, followed by a decline in 2001-2002 coincident with the decline in heroin availability. HCV incidence was estimated to be 9700 (lower and upper limits of 6600 and 13,200) in 2005. Of these, 88.7% were estimated to be through injecting drug use, 7.2% among migrants and 4.1% through other transmission routes. An estimated 264,000 (lower and upper limits of 206,000 and 318,000) people were HCV antibody positive in 2005. CONCLUSIONS: Mathematical models suggest that HCV incidence in Australia decreased from a peak of 14,000 new infections in 1999 to 9700 new infections in 2005, largely attributable to a reduction in injecting drug use. The numbers of people living with HCV in Australia is, however, estimated to continue to increase.