There is a growing need to identify appropriate standardised treatment strategies that will adequately treat various forms of drug-resistant tuberculosis (TB) and prevent multidrug-resistant (MDR)-TB. A Markov model estimated treatment-related acquired MDR-TB, mortality, disability-adjusted life years and costs in settings with different prevalence of isoniazid monoresistant TB and MDR-TB. We compared four treatment strategies: 1) the standard World Health Organization recommended treatment strategy; 2) adding ethambutol throughout the 6-month treatment of new cases; 3) using a strengthened standardised retreatment regimen; and 4) using standardised MDR treatment for failures of initial treatment. Treatment-related outcomes were derived from the published literature, and costs from direct surveys. A strengthened retreatment regimen, which could achieve lower failure, relapse and acquired MDR rates in isoniazid monoresistant cases, was predicted to be the most cost-effective strategy in all modelled settings. Empirical MDR treatment of failures of initial treatment was the most costly strategy but resulted in the fewest deaths. Adding ethambutol throughout initial treatment would be most effective in preventing acquired MDR, but would lead to excess cases of blindness. A high priority should be given to improving the standardised retreatment regimen, as this is predicted to produce greater benefits than other recently recommended strategies.