Abstract Motivation Single-molecule molecular inversion probes (smMIPs) provide an exceptionally cost-effective and modular approach for routine or large-cohort next-generation sequencing. However, processing the derived raw data to generate highly accurate variants calls remains challenging. Results We introduce SmMIP-tools, a comprehensive computational method that promotes the detection of single nucleotide variants and short insertions and deletions from smMIP-based sequencing. Our approach delivered near-perfect performance when benchmarked against a set of known mutations in controlled experiments involving DNA dilutions and outperformed other commonly used computational methods for mutation detection. Comparison against clinically approved diagnostic testing of leukaemia patients demonstrated the ability to detect both previously reported variants and a set of pathogenic mutations that did not pass detection by clinical testing. Collectively, our results indicate that increased performance can be achieved when tailoring data processing and analysis to its related technology. The feasibility of using our method in research and clinical settings to benefit from low-cost smMIP technology is demonstrated. Availability and implementation The source code for SmMIP-tools, its manual and additional scripts aimed to foster large-scale data processing and analysis are all available on github (https://github.com/abelson-lab/smMIP-tools). Raw sequencing data generated in this study have been submitted to the European Genome-Phenome Archive (EGA; https://ega-archive.org) and can be accessed under accession number EGAS00001005359. Supplementary information Supplementary data are available at Bioinformatics online.