A prospective cohort study estimated the incidence of hepatitis C virus (HCV) in drug injectors in South Wales (UK). In total, 286/481 eligible seronegative individuals were followed up after approximately 12 months. Dried blood spot samples were collected and tested for anti-HCV antibody and behavioural data were collected at baseline and follow-up. HCV incidence was 5.9/100 person-years [95% confidence interval (CI) 3.4-9.5]. HCV incidence was predicted by community size [incident rate ratio (IRR) 6.6, 95% CI 2.11-20.51, P = 0.001], homelessness (IRR 2.9, 95% CI 1.02-8.28, P = 0.047) and sharing injecting equipment (IRR 12.7, 95% CI 1.62-99.6, P = 0.015). HCV incidence was reduced in individuals in opiate substitution treatment (IRR 0.34, 95% CI 0.12-0.99, P = 0.047). In order to reduce follow-up bias we used multiple imputation of missing data using switching regression; after imputation estimated HCV incidence was 8.5/100 person-years (95% CI 5.4-12.7). HCV incidence varies with community size, equipment sharing and homelessness are associated with increased HCV incidence and opiate substitution treatment may be protective against HCV.