(NEW YORK) FORTUNE - When Friday's announcement came it was hard to see it as anything but wonderful news -- the FDA had approved a vaccine called RotaTeq, made by Merck & Co., which had the potential to stop a deadly viral epidemic in its tracks.

Here was "an important new tool," said the FDA's Jesse L. Goodman, MD, that could "effectively prevent an illness that affects almost all children within the first few years of life." The plague, called rotavirus, causes severe diarrhea, vomiting, and fever in infants and toddlers that, if unchecked, quickly leads to dehydration. And in much of the developing world, that can mean imminent death.

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Deadly caution How our national obsession with drug safety is killing people -- and what we can do about it. (Full story)

Estimates -- which may even be low -- are that some 600,000 children succumb each year to rotavirus gastroenteritis. On the scale of human misery, then, this bug is a biggie. So what could be wrong with a medical marvel that could conceivably end its reign?

Well, nothing -- except that this very happy ending caps a tale that is otherwise quite terrifying. You see Merck's (Research) RotaTeq (and a competing product from GlaxoSmithKline (Research) called Rotarix that is approved in a number of countries, though not yet the United States) aren't the first miracle weapons designed to fight this disease.

In 1998, American Home Products (now Wyeth (Research)) got permission from the FDA to market RotaShield, a vaccine that, in testing, was virtually 100 percent effective in preventing rotavirus. RotaShield was considered by infectious-disease specialists to be nothing less than a godsend.

Selling for a little over $100 for a complete three-dose regimen, it was quickly taken up in the U.S. schedule for childhood vaccinations. Within a year some 1.5 million American children had been inoculated.

But during this time, government researchers caught sight of what looked to be a serious problem. In children who were vaccinated, the occurrence of a rare bowel obstruction called intussusception was higher than in the general population -- by a rate of one to two cases per 10,000.

That prompted the U.S. Centers for Disease Control to withdraw its endorsement for the vaccine and the FDA to encourage the company to remove it from the U.S. market. Wyeth soon abandoned the whole effort. Cut to six long years of waiting...and then the FDA's gleeful announcement on Feb. 3.

You could argue that the system worked just as it was supposed to: A dangerous vaccine was withdrawn, and drug makers went back to the lab to cook up a better medicine. But consider for a moment the cost of not having the vaccine during those six years: An estimated 3.6 million children have been lost worldwide to a preventable disease. (In the United States, where rotavirus is rarely deadly, it still results in 55,000 hospitalizations, even more panicked visits to the ER, and countless hours in doctors' waiting rooms for kids under age 5.)

And if millions of deaths and parent heartbreaks aren't tragic enough, consider the effect that the rotavirus saga -- and other tales just like it -- have had on our national preparedness for viral plagues. The tiniest threat of a deadly side effect can derail not only a good vaccine, but a vaccine maker as well.

Economic pressures are so great (both Merck and Glaxo had to conduct huge, expensive clinical trials, each involving well over 60,000 people) and regulatory thresholds are so high that many would-be vaccine producers just plain give up. According to the Institute of Medicine, we've gone from 26 U.S. producers of vaccines in 1967 to a mere five in 2003.

Indeed, the pressures are equally heavy on the makers of antibiotics, says Carl Nathan, an authority on infectious disease at Cornell University's Weill Medical College in New York City. And it's driving people out of this R&D-intensive, ultra-high-risk business, too.

Nathan worries where that's leading us -- especially in an era where drug-resistant bacteria are on the rise. "We're racing back to pre-penicillin days," Nathan warns. For growing numbers of infections, he says, "there aren't going to be any more antibiotics to turn to very soon."

The numbers already suggest an ominous trend: In 1992, according to the NIH, 13,300 patients died of an infection they picked up in the hospital. In 2004 the figure was 90,000 -- up almost sevenfold in 12 years.

The twin threats of dwindling vaccines and antibiotics point to the real problem with the drug regulatory process today—and it's the opposite of what most people might expect from a quick read of the headlines. The gravest danger we face isn't the "next Vioxx," but rather the fear of the next Vioxx.

The FDA is in thrall to a well-intentioned but ultimately misguided national obsession: the quest for certainty about drug safety. As scores of interviews with scientists, regulators, industry officials, patients, and policymakers over the past four months suggest, our regulators have fallen prey to a deadly caution -- and it's killing people.

It's delaying the availability of potentially helpful treatments for cancer, multiple sclerosis, Parkinson's, and a host of other ailments; it's slowing the absorption of new knowledge and diagnostic tools into medical practice; and it's discouraging the pursuit of vaccines and next-generation antibiotics that could save tens of millions of lives. It has been a factor in both the blistering rise of drug costs and in what the FDA itself has dubbed the "pipeline problem" at the world's pharmaceutical companies.

And that fear is hurting us in ways we're only starting to learn. To find out why the four most dangerous words in medicine are "First, do no harm," click here.