Among the theories that have been proposed to explain the evolution of altruism are direct reciprocity and indirect reciprocity. The idea of the latter is that helping someone or refusing to do so has an impact on one's reputation within a group. This reputation is constantly assessed and reassessed by others and is taken into account by them in future social interactions. Generosity in indirect reciprocity can evolve if and only if it eventually leads to a net benefit in the long term. Here, we show that this key assumption is met. We let 114 students play for money in an indirect and a subsequent direct reciprocity game. We found that although being generous, i.e., giving something of value to others, had the obvious short-term costs, it paid in the long run because it builds up a reputation that is rewarded by third parties (who thereby themselves increase their reputation). A reputation of being generous also provided an advantage in the subsequent direct reciprocity game, probably because it builds up trust that can lead to more stable cooperation.