BackgroundTo reduce global tuberculosis (TB) burden, the active disease must be diagnosed quickly and accurately and patients should be treated and cured. In Ethiopia, TB diagnosis mainly relies on spot-morning-spot (SMS) sputum sample smear analysis using Ziehl-Neelsen staining techniques (ZN). Since 2014 targeted use of xpert has been implemented. New diagnostic techniques have higher sensitivity and are likely to detect more cases if routinely implemented. The objective of our study was to project the effects of alternative diagnostic algorithms on the patient, health system, and costs, and identify cost-effective algorithms that increase TB case detection in Addis Ababa, Ethiopia.MethodsAn observational quantitative modeling framework was applied using the Virtual Implementation approach. The model was designed to represent the operational and epidemiological context of Addis Ababa, the capital city of Ethiopia. We compared eight diagnostic algorithm with ZN microscopy, light emitting diode (LED) fluorescence microscopy and Xpert MTB/RIF. Interventions with an annualized cost per averted disability adjusted life year (DALY) of less than the Gross Domestic Product (GDP) per capita are considered cost-effective interventions.ResultsWith a cost lower than the average per-capita GDP (US$690 for Ethiopia) for each averted disability adjusted life year (DALY), three of the modeled algorithms are cost-effective. Implementing them would have important patient, health system, and population-level effects in the context of Addis Ababa❖ The full roll-out of Xpert MTB/RIF as the primary test for all presumptive TB cases would avert 91170 DALYs (95% credible interval [CrI] 54888 – 127448) with an additional health system cost of US$ 11.6 million over the next 10 years. The incremental cost-effectiveness ratio (ICER) is $370 per DALY averted.❖ Same day LED fluorescence microscopy for all presumptive TB cases combined with Xpert MTB/RIF targeted to HIV-positive and High multidrug resistant (MDR) risk groups would avert 73600 DALYs( 95% CrI 48373 - 99214) with an additional cost of US$5.1 million over the next 10 years. The ICER is $169per DALY averted.❖ Same-day LED fluorescence microscopy for all presumptive TB cases (and no Xpert MTB/RIF) would avert 43580 DALYs with a reduction cost of US$ 0.2 million over the next 10years. The ICER is $13 per DALY averted.ConclusionsThe full roll-out of Xpert MTB/RIF is predicted to be the best option to substantially reduce the TB burden in Addis Ababa and is considered cost effective. However, the investment cost to implement this is far beyond the budget of the national TB control program. Targeted use of Xpert MTB/RIF for HIV positive and high MDR risk groups with same-day LED fluorescence microscopy for all other presumptive TB cases is an affordable alternative.Electronic supplementary materialThe online version of this article (doi:10.1186/s12879-017-2417-6) contains supplementary material, which is available to authorized users.