The Malaysia Diagnosis Related Group (MY-DRG®), established since 2002, is a patient classification system that stratifies disease severity and categories patients into iso-resource groups. Casemix can be used to estimate costs per episode of care and as a provider payment tool in health services. Casemix has also been used to enhance quality and improve the efficiency of health services. Hence, estimation cost per DRG is important especially in developing countries where costing data are still scarce. We embarked on a study to determine the costs of the diagnostics laboratory services for each MY-DRG® based on the severity of illnesses. Most costing studies for diagnostic laboratory services usually focus on the cost of consumables and equipment alone and employed the step-down costing method. Very few studies applied Activity-Based Costing (ABC) method to estimate the costs for diagnostic laboratory services. This study was done with the purpose of developing the diagnostics laboratory cost using the ABC method. All medical cases discharged from UKM Medical Centre (UKMMC) in 2011 grouped into MY-DRG® were included in this study. In 2011, a total of 2.7 million diagnostic laboratory investigations were carried out in the Department of Diagnostic Laboratory Services in UKMMC. ABC was conducted from January to December 2013 in all units of the department. Cost of 242 types of diagnostic laboratory services were collected using a costing format. Out of 25,754 cases, 16,173 (62.8%) cases were from the medical discipline. After trimming using L3H3 method, 15,387 cases were included in the study. Most of the cases were on severity level one (44.6%), followed by severity level two (32.3%) and severity level three (23.1%). The highest diagnostic laboratory service weight was for Lymphoma & Chronic Leukemia, severity level III (C-4-11-III) with the value of 5.9609. Information on seven cost components was collected form each procedure: human resources, consumables, equipment, reagents, administration, maintenance and utilities. The results revealed that, the biggest cost component for human resources was in Molecular Genetic Unit (89.6%), consumables (34.8%) from Tissue Culture Unit, equipment (11.2%) and reagents (68.1%) from Specialized Haemostasis Unit. In conclusion, the accurate and reliable cost of the diagnostic laboratory services can be determined using ABC. Top management of the department should be able to use the output of the study to take appropriate steps to reduce unnecessary wastages of resources in the various units of the services.