A method for controlling an output of a small base station in a mobile communication system is provided. The method includes measuring Received Signal Strength Indication (RSSI) and receive sensitivity of at least one of a macro base station and a neighboring small base station, determining a service margin of the small base station, and determining transmission power based on the RSSI, the receive sensitivity and the service margin. The method may further include extracting the receive sensitivity of the neighboring small base station from the measured receive sensitivity, calculating the RSSI of the macro base station from total RSSIs based on a receive sensitivity ratio of the neighboring small base stations prior to determining the service margin.