Cost-effectiveness of two hospital-based treatments of acute diarrheas, one year before (May 1, 1988-April 30, 1989) and one year after (May1, 1989 - April 30, 1990) the establishment of the Diarrhea Management Unit (DMU) at the Research Institute for Tropical Medicine (RITM) were compared. Two hundred episodes of diarrhea in children 5 years and below were randomly sampled from each period.The establishment of the Diarrhea Management Unit resulted in the improvement of practices of the health care workers in the hospital. there was 33.3 reduction in the average length of stay of patients admitted for diarrhea alone, 15.9 increase in the proportion of patients correctly assessed; 100 increased in patients who were correctly hydrated; 52.9 decrease in the proportion of patients with some IVF; 21.0 increase in the proportion of patients with some dehydration given ORS and a 41 decrease in the proportion of patients inappropriately given antibiotics. ORS consumption increased to as much as 51.6 in the DMU period.More importantly, savings in the hospital costs were seen in the reduction in the annual in-patient and out-patient diarrhea in both the laboratory and drug costs. overall, the impact of the DMU resulted in the net savings for the hospital of 49.4 per diarrhea patient.