Background: There is urgent need for effective HIV prevention methods that women can initiate. The CAPRISA 004 trial showed that a tenofovir-based vaginal microbicide had significant impact on HIV incidence among women. This study uses the trial findings to estimate the population-level impact of the gel on HIV and HSV-2 transmission, and price thresholds at which widespread product introduction would be as cost-effective as male circumcision in urban South Africa. Methods: The estimated ‘per sex-act’ HIV and HSV-2 efficacies were imputed from CAPRISA 004. A dynamic HIV/STI transmission model, parameterised and fitted to Gauteng (HIV prevalence of 16.9% in 2008), South Africa, was used to estimate the impact of gel use over 15 years. Uptake was assumed to increase linearly to 30% over 10 years, with gel use in 72% of sex-acts. Full economic programme and averted HIV treatment costs were modelled. Cost per DALY averted is estimated and a microbicide price that equalises its cost-effectiveness to that of male circumcision is estimated. Results: Using plausible assumptions about product introduction, we predict that tenofovir gel use could lead to a 12.5% and 4.9% reduction in HIV and HSV-2 incidence respectively, by year 15. Microbicide introduction is predicted to be highly cost-effective (under $300 per DALY averted), though the dose price would need to be just $0.12 to be equally cost-effective as male circumcision. A single dose or highly effective (83% HIV efficacy per sex-act) regimen would allow for more realistic threshold prices ($0.25 and $0.33 per dose, respectively). Conclusions: These findings show that an effective coitally-dependent microbicide could reduce HIV incidence by 12.5% in this setting, if current condom use is maintained. For microbicides to be in the range of the most cost-effective HIV prevention interventions, product costs will need to decrease substantially.