OBJECTIVE: To compare the cost-effectiveness, mode of delivery, fetal and maternal outcome of oral Misoprostol and vaginal prostaglandin E2 pessary in induction of labour at term. DESIGN: Randomized clinical trial. PLACE AND DURATION OF STUDY: Hamdard University Hospital, Imam Clinic and General Hospital from February 2002 to January 2003. PATIENTS AND METHODS: The trial was conducted over two groups of patient for labour induction such that Group A received 50 microg oral Misoprostol 4 hourly to a maximum of four doses. Group B received prostaglandin E2 vaginal pessary at 6 hourly intervals upto two doses. Labour induction, number of doses, need of augmentation, induction to delivery time interval, mode of delivery and neonatal outcome were the main outcomes. Test of proportions was used to compare the significance between both managements. RESULTS: Out of a total of 214 women, 106 received oral Misoprostol and 108 received PGE2 vaginal pessary. Ninety-three percent women in misoprostol group were successfully induced compared with 91% in PGE2 group. A significant response of labour induction with the minimal dose (58%, p = 0.001) and earlier induction to vaginal delivery (74%, p = 0.01) was observed in Misoprostol group. Rate of operative delivery was also less (16%, p = 0.16) compared with PGE2 group (25%). CONCLUSION: Oral Misoprostol administration was more efficient and cost-effective than PGE2 vaginal pessary for induction of labour due to earlier response with minimal dose and less number of operative deliveries.