Abstract Background Insecticide-treated bed nets (ITN) reduce malaria morbidity and mortality consistently in Africa, but their benefits have been less consistent in Asia. This study’s objective was to evaluate the malaria protective efficacy of village-wide usage of ITN in Western Myanmar and estimate the cost-effectiveness of ITN compared with extending early diagnosis and treatment services. Methods A cluster-randomized controlled trial was conducted in Rakhine State to assess the efficacy of ITNs in preventing malaria and anaemia in children and their secondary effects on nutrition and development. The data were aggregated for each village to obtain cluster-level infection rates. In total 8,175 children under 10 years of age were followed up for 10 months, which included the main malaria transmission period. The incidence and prevalence of Plasmodium falciparum and Plasmodium vivax infections, and the biting behaviour of Anopheles mosquitoes in the area were studied concurrently. The trial data along with costs for current recommended treatment practices were modelled to estimate the cost-effectiveness of ITNs compared with, or in addition to extending the coverage of early diagnosis and treatment services. Results In aggregate, malaria infections, spleen rates, haemoglobin concentrations, and weight for height, did not differ significantly during the study period between villages with and without ITNs, with a weighted mean difference of −2.6 P. falciparum episodes per 1,000 weeks at risk (95% Confidence Interval −7 to 1.8). In areas with a higher incidence of malaria there was some evidence ITN protective efficacy. The economic analysis indicated that, despite the uncertainty and variability in their protective efficacy in the different study sites, ITN could still be cost-effective, but not if they displaced funding for early diagnosis and effective treatment which is substantially more cost-effective. Conclusion In Western Myanmar deployment of ITNs did not provide consistent protection against malaria in children living in malaria endemic villages. Early diagnosis and effective treatment is a more cost effective malaria control strategy than deployment of ITNs in this area where the main vector bites early in the evening, often before people are protected by an ITN.