Introduction: There is a concern in many countries about violence from late‐night alcohol sales and appropriate regulatory responses. However, economic losses arising from this activity rarely feature in public debate. Credible estimates are lacking because economic evaluations have not taken a 'societal perspective', costing health, policing and criminal justice outcomes. Our aims were to: (i) develop an analytic model capable of informing cost–benefit analysis of policy changes; and (ii) estimate costs of alcohol‐related assault (ARA) in a major city. Methods: We employed decision‐analytic cohort models of health and judicial consequences of ARA in Sydney, Australia. We constructed two 6‐branch decision‐analytic models of patient and offender pathways through the health and judicial systems. We produced overall estimates and analysed their sensitivity to key assumptions. Results: Combining results from a Health model comprising 40 pathways and 137 cost events, and a Justice model comprising 20 pathways and 48 cost events, yielded an overall cost estimate of $85 093 per ARA, of which 64% was health‐related, while 36% was justice‐related. Estimates were sensitive to values assigned for 'pain, suffering, morbidity and wellbeing', and to costs of incarceration. Health service‐related costs accounted for 1.3% of the total. Discussion and Conclusion: The costs of ARA are significant and dominated by incidents in which a victim does not necessarily receive acute medical care but suffers loss in quality‐of‐life, and where a perpetrator is processed through the criminal justice system. Being derived transparently, within a theoretical framework, the estimates are adaptable to inform cost–benefit analyses of policy options in Australia and other countries. [ABSTRACT FROM AUTHOR]