Current funding mechanisms can impede the efficient use and integration of telemedicine services. Telemedicine has developed in Australia against a background of complex funding arrangements and interwoven health-care responsibilities. These impediments are not unique to telemedicine but are accentuated by its ability to cover different locations, clinical areas and purposes. There is also a link between economic evaluation and funding mechanisms for telemedicine. While economic evaluations provide important information for the efficient allocation of resources, the funding environment in which telemedicine is established is also crucial in ensuring that services are efficient. Given these complexities, should telemedicine be funded? We conclude that this will depend on: the objectives and priorities of the health system; the efficiency of telemedicine relative to that of other forms of health-care delivery; and the funding environment. In terms of resource allocation processes, the optimum scenario is likely to be where the decision to invest in telemedicine services is made taking local needs into account, but where considerations such as market structure and network compatibility are examined on a broader scale and balanced against the principles of efficiency and equity.