BACKGROUND: Over the next 45 years the Australian population will age rapidly as the baby boomer cohort moves into retirement and then old age. As the population ages there will be substantial growth in the demand for hospital bed-days, placing a corresponding demand on infrastructure and staffing. METHODS: Australian Bureau of Statistics population projections to 2050 and Australian Institute of Health and Welfare public hospital bed-day data from 1993-94 to 2003-04 were used to develop models of future demand and examine the sensitivity of the results to model assumptions. RESULTS: Over the long term, demand for public hospital bed-days was projected to grow faster than population growth. By 2050, ageing will increase the demand for bed-days by between 70% and 130% depending on the underlying assumptions, and the proportion of bed-days devoted to older people will increase from under 50% in 2005 to over 70%. CONCLUSIONS: Ageing of the population will increase the demand for health services just as it will become harder to recruit health professionals as the large baby boomer cohort retires from the health workforce. Accordingly, we need to plan now to ensure future needs of the ageing population are met.