Although both disability and poverty have been subjected to extensive research, relatively few Australian studies have examined the relationship between these two important social issues. However, recent changes to the Disability Support Pension mean that there is an urgent need to estimate the costs of disability so that the impact of the changes on poverty can be assessed and inserted into the policy debate. This paper reviews evidence linking the presence of disability to the risk of poverty and the actual hardship using data from the 1998-99 Household Expenditure Survey (HES), and shows that where there is someone in the household with a disability, poverty rates are higher and hardship is more prevalent. It then uses the HES data to estimate the costs of disability using a method recently developed in the UK that relies upon information on household living standards. The estimates are robust and reliable, indicating that the costs of disability represent a substantial percentage of disposable income, and thus that poverty rates are much higher where there is a disability present. Estimates based on the impact of the severity of the restriction associated with the disability are also derived and make a similarly large difference to conventional poverty estimates. Overall, the estimates imply that there is an urgent need to review the adequacy of income support arrangements for those with a disability across all household types: single and married; young and old; one- and two-parent; with and without children. The size of the impact of disability on the risk of poverty and actual hardship suggests that action is required to ensure that people with a disability no longer have to confront a greatly increased risk of poverty in addition to many other challenges.