An apparatus and method for setting transmit power of a compact Base Station (BS) in a wireless communication system are provided. In the apparatus and method a measurer measures a signal strength corresponding to each of one or more neighbor BSs while operating in a Mobile Station (MS) mode, a receiver receives a signal strength corresponding to each of the one or more neighbor BSs measured by one or more MSs from the corresponding one or more MSs, and a self-configuration controller sets a target signal strength based on the signal strength corresponding to each of the one or more neighbor BSs measured in the MS mode and controls a transmit power so that the signal strength corresponding to each of the one or more neighbor BSs measured by the one or more MSs substantially reaches the target signal strength.