Accuracy of diagnosis is central for malaria control. Although microscopy is gold standard in malaria diagnosis, its reliability is largely dependent on user skill. In this study, we evaluated practitioners' clinical and microscopists' technical skills in diagnosis of malaria in central Sudan. In a retrospective study, 3203 blood smears from 95 peripheral health facilities (each represented by a general practitioner [GP] and general microscopist [GM]) were reexamined by expert microscopist. Furthermore, in a prospective study, 410 patients had their malaria diagnosis rechecked by rapid diagnostic test for validation of the microscopic diagnosis. Results showed that the rate of false-positive diagnosis of malaria was 75.6% and false-negative diagnosis was 0.01%. The study disclosed poor skills of the GPs and GMs in malaria diagnosis because 43% of the GPs and 44% of the GMs failed to make a single true-positive malaria diagnosis. The false-positive malaria diagnosis showed bias toward adult females. Economically, the calculated cost of diagnosis and treatment of malaria in Sudan in year 2000 is US$100 million, whereas the calculated cost of true malaria is approximately US$14 million. In conclusion, malaria overdiagnosis was widely recognized in central Sudan, with high economic burden during the era of artemisinin-based combination therapy. Finally, different scenarios were suggested for improvement of malaria diagnosis.