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Background: Microscopic Observation Drug Susceptibility (MODS) and Xpert MTB/Rif (Xpert) are highly sensitive tests for diagnosis of pulmonary tuberculosis (PTB). This study evaluated the cost effectiveness of utilizing MODS versus Xpert for diagnosis of active pulmonary TB in HIV infected patients in Uganda. Methods: A decision analysis model comparing MODS versus Xpert for TB diagnosis was used. Costs were estimated by measuring and valuing relevant resources required to perform the MODS and Xpert tests. Diagnostic accuracy data of the tests were obtained from systematic reviews involving HIV infected patients. We calculated base values for unit costs and varied several assumptions to obtain the range estimates. Cost effectiveness was expressed as costs per TB patient diagnosed for each of the two diagnostic strategies. Base case analysis was performed using the base estimates for unit cost and diagnostic accuracy of the tests. Sensitivity analysis was performed using a range of value estimates for resources, prevalence, number of tests and diagnostic accuracy. Results: The unit cost of MODS was US$ 6.53 versus US$ 12.41 of Xpert. Consumables accounted for 59 % (US$ 3.84 of 6.53) of the unit cost for MODS and 84 % (US$10.37 of 12.41) of the unit cost for Xpert. The cost effectiveness ratio of the algorithm using MODS was US$ 34 per TB patient diagnosed compared to US$ 71 of the algorithm using Xpert. The algorithm using MODS was more cost-effective compared to the algorithm using Xpert for a wide range of different values of accuracy, cost and TB prevalence. The cost (threshold value), where the algorithm using Xpert was optimal over the algorithm using MODS was US$ 5.92. Conclusions: MODS versus Xpert was more cost-effective for the diagnosis of PTB among HIV patients in our setting. Efforts to scale-up MODS therefore need to be explored. However, since other non-economic factors may still favour the use of Xpert, the current cost of the Xpert cartridge still needs to be reduced further by more than half, in order to make it economically competitive with MODS.