Water quality trading is a new approach in pollution control which satisfies water quality standards suggesting minimum cost solutions. This method uses tradable discharge permits based on pollution transfer coefficient in a river. This paper tries to establish a water quality trading program in a river basin according to transfer coefficients between pollution sources and evaluate cost effectiveness of the pollution control method. The case study is Dez river watershed in south of Iran in Khuzestan province. The average annual flow of the river is 368cms at downstream station. The major pollution sources of the river include domestic and industrial wastewater. A water quality trading program is accomplished in five steps including zoning the study area, determination of total pollution load of each zone based on water quality model, determination of pollution transfer coefficient among pollutants and zones and determination of allowable tradable discharge load for each zone and each pollutant load. In order to determine the initial amount discharge permit and transfer coefficient a water quality model for the river is developed using Streeter- Phelps equation. In this study the cost of pollution control for each source has been estimated by both technological (treatment plant construction) and non-technological (trading) methods. The ratio of the cost of the technological to the non-technological pollution control has been evaluated as the cost effectiveness criteria. With respect to this criterion, for some pollution source technological method is cost effective and they should construct a wastewater treatment plant. The other sources should buy discharge permit from the pollution sources which has decreased their discharge quality lower than required. The amount of the permit that a discharger should buy is determined by environmental agency authority according to the transfer coefficients.