Australian heroin markets have recently undergone dramatic change, sparking debate about the nature of such markets. This study aimed to determine the onset, peak and decline of the heroin shortage in New South Wales (NSW), using the most appropriate available methods to detect market level changes. The parameters of the heroin shortage were determined by reviewing: reports of heroin users about availability and price (derived from the existing literature and the Illicit Drug Reporting System); qualitative interviews with injecting drug users, and health and law enforcement professionals working in the illicit drug field; and examining data on heroin seizures over the past decade. There was a marked reduction in heroin supply in NSW in early 2001. An increase in the price of heroin occurred in 2001, whereas it had decreased steadily since 1996. A reduction in purity also occurred, as reported by drug users and heroin seizures. The peak period of the shortage appears to have been January to April 2001. The market appears to have stabilised since that time, although it has not returned to pre- 2001 levels: heroin prices have decreased in NSW for street grams, but not to former levels, and the price of `caps' (street deals) remain elevated. Heroin purity in NSW has remained low, with perhaps a 10% increase above the lowest recorded levels. These data support the notion that the heroin market in NSW underwent significant changes, which appear to have involved a lasting shift in the nature of the market.