A method and system for compensating for instrumentation overhead in trace data is provided. To profile a program, the program is executed to generate trace records that are written to a trace file. A set of event trace records in a trace file is processed to determine one or more trace overhead compensation values. The trace overhead compensation values are determined by computing, for each successive pair of event trace records in the trace file, a difference between a first timestamp in a preceding event trace record and a second timestamp in a succeeding event trace record. The minimum value of all of these differences is then stored as a trace overhead compensation value representing an amount of time for instrumentation processing of an event. The one or more trace overhead compensation values are applied to the event trace records during subsequent processing of the set of event trace records.