OBJECTIVES: Approximately 40,000 new TB cases are treated annually in Uganda, and 4,000 are reported to require re-treatment (category II treatment). Current tuberculosis (TB) treatment in Uganda is standard 4 drug therapy in intensive phase (2 months), followed by isoniazid and ethambutol for 6 months (6HE). However, the World Heath Organization recommends isoniazid and rifampicin for 4 months (4HR) in the continuation phase, which is associated with better efficacy. We sought to investigate the cost-effectiveness of 4HR vs. 6HE. METHODS: Randomized clinical trial evidence indicates a significant decrease in the rate of treatment failure and relapse associated with 6HE versus 4HR from 10.0% to 5.0%. The median international daily drug price is HR: US$0.115 and HE: US$0.069. When the initial regimen is not successful, re-treatment is associated with a mortality rate of up to 23% and involves an additional 8 month drug-regimen at a cost of US$39.25. A decision tree was used to calculate the expected total cost of TB treatment in the 4HR versus 6HE arm. RESULTS: The cost of TB treatment in the continuation phase is 4HR: US$13.82 and 6HE: US$12.46. However, once the cost of re-treatment is factored in, the average weighted treatment cost is 4HR: US$15.79 and 6HE: US$16.38. Replacing 6HE with 4HR nationally could decrease the annual cost of TB treatment by an estimated US$23,500 and prevent about 2,000 TB treatment failures and relapses per year. CONCLUSIONS: Combination therapy with 4HR in the continuation phase dominates 6HE, as it is associated with improved effectiveness and a lower average cost per patient. Since treatment failure or relapse is associated with worsened clinical outcomes in resource constrained settings, considerable gains to population health could be achieved at lower cost if 4HR became the new standard of care in the continuation phase of TB treatment in Uganda.