We present a new approach for estimation and optimization of the average stand-by power dissipation in large MOS digital circuits. To overcome the complexity of state dependence in average leakage estimation, we introduce the concept of “dominant leakage states” and use state probabilities. Our method achieves speed-ups of 3 to 4 orders of magnitude over exhaustive SPICE simulations while maintaining accuracies within 9% of SPICE. This accurate estimation is used in a new sensitivity-based leakage and performance optimization approach for circuits using dual Vt processes. In tests on a variety of industrial circuits, this approach was able to obtain 81-100% of the performance achievable with all low Vt transistors, but with 1/3 to 1/6 the stand-by current.