The present study was conducted with the aim of investigating the role of establishing a performance-based budgeting system in improving financial discipline and cost efficiency in public institutions. This study is applied in terms of its purpose and descriptive-survey in terms of its data collection method. The statistical population of the study consisted of managers, deputies, and finance and budget experts of public institutions, from whom a sample of 200 people was selected using simple random sampling. The data collection tool was a researcher-made questionnaire appropriate to the dimensions of the variables, whose validity and reliability were confirmed through convergent validity, divergent validity (Fornell-Larker criterion), and composite reliability indices. Data analysis and hypothesis testing were performed using the partial least squares structural equation modeling method and with the help of SmartPLS software. The research findings showed that performance-based budgeting has a positive, direct, and significant effect on financial discipline (with a path coefficient of 0.757 and a t-statistic of 45.858) and cost efficiency (with a path coefficient of 0.589 and a t-statistic of 12.546). Also, the examination of the model fit indices (such as SRMR equal to 0.066 and NFI equal to 0.944) confirmed the favorable fit and high compliance of the conceptual model with the empirical data. Finally, the research results indicate that the transition from traditional to performance-based budgeting plays a pivotal role in strengthening financial discipline and optimizing public institution expenditures by improving transparency, realizing the cost of services, and linking credits to measurable outputs.