Summary Background The diagnosis of hypertension has traditionally been based on blood-pressure measurements in the clinic, but home and ambulatory measurements better correlate with cardiovascular outcome, and ambulatory monitoring is more accurate than both clinic and home monitoring in diagnosing hypertension. We aimed to compare the cost-effectiveness of different diagnostic strategies for hypertension. Methods We did a Markov model-based probabilistic cost-effectiveness analysis. We used a hypothetical primary-care population aged 40 years or older with a screening blood-pressure measurement greater than 140/90 mm Hg and risk-factor prevalence equivalent to the general population. We compared three diagnostic strategies—further blood pressure measurement in the clinic, at home, and with an ambulatory monitor—in terms of lifetime costs, quality-adjusted life years, and cost-effectiveness. Findings Ambulatory monitoring was the most cost-effective strategy for the diagnosis of hypertension for men and women of all ages. It was cost-saving for all groups (from −£56 95% CI −105 to −10 in men aged 75 years to −£323 −389 to −222 in women aged 40 years) and resulted in more quality-adjusted life years for men and women older than 50 years (from 0·006 0·000 to 0·015 for women aged 60 years to 0·022 0·012 to 0·035 for men aged 70 years). This finding was robust when assessed with a wide range of deterministic sensitivity analyses around the base case, but was sensitive if home monitoring was judged to have equal test performance to ambulatory monitoring or if treatment was judged effective irrespective of whether an individual was hypertensive. Interpretation Ambulatory monitoring as a diagnostic strategy for hypertension after an initial raised reading in the clinic would reduce misdiagnosis and save costs. Additional costs from ambulatory monitoring are counterbalanced by cost savings from better targeted treatment. Ambulatory monitoring is recommended for most patients before the start of antihypertensive drugs. Funding National Institute for Health Research and the National Institute for Health and Clinical Excellence.