Background: Tuberculosis remains a global public health problem. It mainly affects thernpoor and vulnerable populations. Therefore, there is a substantial global and country levelrneffort to detect and treat tuberculosis cases. Early diagnosis of tuberculosis is one of thernpillars of the tuberculosis control strategy. Smear microscopy testing is a routine test for therndiagnosis of pulmonary tuberculosis in resource-constrained countries. However, the use ofrnrapid molecular tests like Gene Xpert is increasing, and many countries are scaling up the usernof Gene Xpert without a clear evaluation of the cost and cost-effectiveness of the technique. rnObjective: To evaluate the cost-effectiveness of Gene Xpert test compared to smearrnmicroscopy test for diagnosis of tuberculosis patients at health facilities in Arsi zone. rnMethods: We developed a decision-analytic model to evaluate the cost-effectiveness of GenernXpert algorithms compared to smear microscopy for the diagnosis of tuberculosis. Costs werernestimated from the health provider perspective in a one-year time frame. We applied anrningredients-based costing approach to identify, measure, and value the cost of the smearrnmicroscopy and Xpert algorithm. Effectiveness was measured as the proportion of casesrndetected for each of the diagnostic strategies. The cost-effectiveness ratio was calculated byrndividing the change in cost and change in effectiveness. One-way and probabilisticrnsensitivity analysis was done by varying different inputs parameters. rnResult: The unit cost of Gene Xpert and smear microscopy methods was $12.92 and $3.1 perrntest respectively. The unit costs of Xpert and smear microscopy were mostly influenced byrnthe cost of cartridge $10.67 (82.58%) and supplies $1.28 (41.29%). The mean cost of smearrnmicroscopy and Gene Xpert site was 3.3$ ($2.4-$4.96) and 12.96$ ($12.69-$13.22)rnrespectively. The cost-effectiveness of the Gene Xpert method was $729.82 per proportion ofrnTB cases detected. During one-way sensitivity analysis, TB prevalence was the mostrninfluential parameter on ICER (530.56 to 1401.13 per proportion of TB cases detected). rnConclusion: The unit cost of Gene Xpert is high compared to smear microscopy diagnosticrnmethod. Our study found that using the Gene Xpert as a routine test is cost-effectiverncompared to one or three times GDP per capita of Ethiopia and can be part of the routinerndiagnostic testing strategy. TB prevalence was the most influential parameter of the costeffectivenessrnof the GenernXpertrnmethod.