Pneumococcal/lobar pneumonia and empyema have an important impact on the health of children worldwide. There has been no epidemiological study of pneumococcal/lobar pneumonia and empyema in Taiwan, a middle-income Asian population. Using Taiwan's National Health Insurance database, we collected and analyzed data obtain from medical care claims related to pneumococcal/lobar pneumonia and empyema for children below the 18 years old from 1997 to 2004. We found the annual population-based incidence to have significant year to year increases and the average annual incidences of pneumococcal/lobar pneumonia and empyema in children under five to be 44.9 and 10.5 episodes per 100,000 children-year, respectively. About 64% of children with pneumococcal/lobar pneumonia and empyema were under 5 years old. Children 4 to 5 years old had the highest incidences of both pneumococcal/lobar pneumonia and empyema. Incidence was the highest each spring. The odds ratio of the case fatality among pneumococcal/lobar pneumonia patients complicated with empyema to those without was 118 (95% confidence interval 28-492). In conclusion, the population-based incidences of pneumococcal/lobar pneumonia and empyema among children under five in Taiwan were 44.9 and 10.5 episodes per 100,000 children-year, respectively, and 4- to 5-year-old children had the highest incidences of both pneumococcal/lobar pneumonia and empyema. This population might benefit from a universal pneumococcal vaccination program which might cover about 70% of invasive pneumococcal diseases in Taiwanese children under 5 years old.