Abstract Background Residential aged care facility residents experience high rates of hospital admissions which are stressful, costly and often preventable. The EDDIE program is a hospital avoidance initiative designed to enable nursing and care staff to detect, refer and quickly respond to early signals of a deteriorating resident. The program was implemented in a 96-bed residential aged care facility in regional Australia. Methods A prospective pre-post cohort study design was used to collect data on costs of program delivery, hospital admission rates and length of stay for the 12 months prior to, and following, the intervention. A Markov decision model was developed to synthesize study data with published literature in order to estimate the cost-effectiveness of the program. Quality adjusted life years (QALYs) were adopted as the measure of effectiveness. Results The EDDIE program was associated with a 19% reduction in annual hospital admissions and a 31% reduction in the average length of stay. The cost-effectiveness analysis found the program to be both more effective and less costly than usual care, with 0.06 QALYs gained and $249,000 health system costs saved in a modelled cohort of 96 residents. A probabilistic sensitivity analysis estimated that there was an 86% probability that the program was cost-effective after taking the uncertainty of the model inputs into account. Conclusions This study provides promising evidence for the effectiveness and cost-effectiveness of a nurse led, early intervention program in preventing unnecessary hospital admissions within a residential aged care facility. Further research in multi-site randomised studies is needed to confirm the generalisability of these results.