Abstract There was a lack of high-quality, evidence-based treatment for lichen simplex chronicus (LSC). Topical steroid under hydrocolloid dressing treatment was investigated mostly in observational studies without investigation of the cost-effectiveness and the methodology of application also varied without standardisation. To investigate the cost-effectiveness of topical steroid under hydrocolloid dressing in the treatment of moderate to severe lichen simplex chronicus (LSC). The study aimed to provide a clear methodology that was replicable. A single-blinded randomized controlled trial was carried out to compare the efficacy of 0.1% mometasone furoate cream with or without hydrocolloid dressing in patients suffering from moderate to severe LSC. Physician Global Assessment (PGA) score, Eczema Area and Severity Index (EASI) individual components score were assessed by a Dermatologist through clinical photos at week 0, 2, and 4. Pruritis Numerical Rating Scale (PNRS) was rated. Forty adult patients were recruited. The group with hydrocolloid dressing showed superior treatment efficacy. 20 out of 20 patients benefited from the hydrocolloid dressing with topical steroid while only 6 out of 20 patients benefited from topical steroid alone at week 2 regarding PGA. Similar result was obtained at week 4. Extra HK$ 132 was needed for each patient in hydrocolloid with topical steroid group. The number needed to treat (NNT) was 1.43 (95% CI: 1.42–1.44) at week 2 and 1.42 (95% CI: 1.41–1.44) at week 4 regarding PGA score improvement of ≥2. NNT analysis supported the cost-effectiveness of adjunctive hydrocolloid dressing usage as the first-line treatment in patients with moderate to severe LSC. This study added evidence to LSC treatment with a detailed and reproducible methodology.