This study assessed the cost-effectiveness of community-based management of acute malnutrition (CMAM) to prevent deaths due to severe acute malnutrition among children under-five. The analysis used a decision tree model to compare the costs and effects of two options to treat severe acute malnutrition: existing health services with CMAM vs existing health services without CMAM. The model used outcome and cost data from a CMAM programme in Dowa district, Malawi and a set of key assumptions regarding treatment-seeking behaviour and mortality outcomes. Under our ‘base case’ scenario, we found that CMAM cost US$42 per disability-adjusted life year (DALY) averted (2007 US$) and US$493 per DALY averted under an assumed ‘worst case’ scenario for each variable. The results suggest that CMAM was highly cost-effective in the ‘base case’ as defined by the World Health Organization, as the cost per DALY falls well below Malawi’s 2007 gross national income (GNI) per capita of US$250, and is within the range of DALYs reported for other child health interventions. Under a hypothetical ‘worst case’ for all variables, the model indicates CMAM is still cost-effective. The results indicate the decision to scale-up CMAM within essential health services in Dowa was a cost-effective one and that scaling up CMAM in similar contexts is also likely to be cost-effective. However, several contextual and programmatic factors should be considered when generalizing to diverse contexts.