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Background Although the majority of smokers initiate smoking during their teenage years, significant rates of initiation occur among young adults. Adolescents are more price sensitive than adults, but little is known about the impact of tobacco taxation on smoking initiation among young adults. Using a longitudinal design, this study examined the impact of decreased cigarette price, resulting from tobacco tax cuts, on smoking initiation among Canadian young adults aged 20 to 24 years. Methods Using Statistics Canada’s National Population Health Survey longitudinal file, this study examined young adults who did not smoke at baseline in 1994-1995 (n =636, representing over 1 million young adults) and who were reassessed at follow-up (1996-1997). Multivariable logistic regression analysis using bootstrap weights was conducted to estimate the impact of decreased cigarette price on smoking initiation. The analysis controlled for the potential confounding effect of sociodemographic and tobacco control variables. Sensitivity analyses were conducted. Price elasticity was estimated. Analyses were conducted in 2003 and 2004. Results Approximately 10% of young adults had initiated smoking at follow-up. Decreased cigarette price was significantly associated with higher smoking initiation (adjusted odds ratio per $1 decrease for a carton of cigarettes=1.15, 95% confidence interval [CI]=1.01-1.32, p =0.042). Sensitivity analyses showed similar results. Price elasticity was 3.36 (95% CI=0.07-6.75). Conclusions Young adults are sensitive to cigarette prices. Reductions in cigarette prices will lead to increased smoking initiation among this group. Tobacco taxation should be an effective strategy to reduce smoking initiation among young adults.