The present study aims to estimate the economic values of negative externalities of wastewater use in cauliflower production. Cost-benefit analysis is employed to estimate the farmer’s health externalities in the production sector. The data are collected from 200 farmers (100 from each group, wastewater and freshwater) in the year 2006 from two peri-urban villages of Faisalabad city. Ignoring the value of negative externalities, wastewater use is profitable in vegetable production but when the economic value of negative externalities are factored in the analysis, the results strongly discourage its use. The cost of health externalities due to wastewater use in cauliflower production (only for a three-month crop) is Rs 3.2 million from the 741 acres planted. In Faisalabad, 5,283 acres of vegetables are cultivated using wastewater, and the value of total negative health externalities amounts to Rs 90.7 million in a year. A huge economic loss due to wastewater use may attract the attention of policy agents to intervene. Among different available options, installation of a water treatment plant appears to be most viable to minimise the external effect of wastewater use in peri-urban agriculture.