The period of economic transition has had severe consequences for health and health systems in Ukraine. The tuberculosis (TB) situation illustrates this. The strategy recommended by the World Health Organization (WHO) for TB, directly observed treatment short-course (DOTS), has the potential to provide real improvements in TB services, forming the basis of the response to the growing epidemic. In 2002, Ukraine, financially supported by USAID and the European Community (EC), began to introduce DOTS through pilot projects in Mariupol and Kyiv City. The aim of this study is to assess the feasibility, effectiveness, health service cost, patient cost, and the cost-effectiveness of these pilots, in order to inform the national scale-up of DOTS. The study finds that DOTS is feasible and has the potential to be both effective and cost-effective in Ukraine. Following this study, Ukraine adopted DOTS as a national TB control strategy in 2005. However, the pilots also found that there are several evidence-related concerns and perverse economic incentives to both providers and patients that will need to be addressed if national scale-up is to be successful. These include concerns related to the treatment of MDR-TB, economic benefits to some patients to remain hospitalized, and payments to providers and health facilities that support current practices. These will need to be addressed if Ukraine is to develop an effective response to its emerging TB epidemic.