This paper examines the magnitude, distribution and causes of HIV/AIDS in Kenya, including responses to fight the disease. An account is also provided of theoretical and empirical economics research approaches used in analysing the impact of HIV/AIDS. On average, statistics show that HIV/AIDS prevalence rates in urban areas are higher than in rural areas, and that HIV/AIDS is imposing heavy costs on the economy, primarily through increased medical care expenditure and labour losses. There are no strong indications that the epidemic is declining, casting doubts on the success of past anti-AIDS efforts. The true impact of awareness-creation campaigns in reducing new infections is still uncertain despite that most funds for intervention are channelled to these efforts. Medical treatment of AIDS patients, which can prolong life and prevent loss of productive labour, has received little attention or funding.This study suggests a partial policy shift from awareness campaigns to prevention, early diagnosis, treatment, and economic and social support for those infected and affected. To forestall momentous economic losses, the authors recommend an incentive mechanism that promotes three important inputs to the national AIDS management programme: - Data on early-diagnosis and follow-up programmes to allow for animation of case-specific interventions, with voluntary counselling and testing (VCT) forming the backbone for medical, economic and social support regimes; - Collection of incidence and general prevalence data to serve as impact indicators and for impact analysis and long-term planning; - Favourable and sustainable linkage of all awareness campaigns, VCT drives and follow-up strategies, treatment regimes and social and economic support programmes to the Poverty Reduction Strategy Papers (PRSP) and the budgeting process, i.e. Medium Term Expenditure Framework (MTEF), with greater commitment of government allocations to these programmes rather than dependency on donor funding.