The purpose of this study is to report on the impact of introduction of the varicella vaccine "Varilix" on hospitalizations due to varicella, following licensure in Israel in June, 2000. Data on children hospitalized throughout Israel with the diagnosis of varicella were collected from 1998 until 2003. The national rate of varicella-related hospitalizations decreased during the period 2001-2002. However in 2003 an increase in hospitalization occurred. Based on an assumption that at least 22,000 vaccinations per year were administered, we estimate that there is a greater than 60% reduction in the risk for hospitalization in the immunized population (RR = 0.32; 0.10-1.00). In summary, no national trend in reduction of hospitalization has yet been observed, but a significant reduction in hospitalization is apparent for vaccinated children.