Due to the increased scrutiny of construction costs for infrastructure projects by the public and legislators, it is becoming increasing important for project developers to prepare accurate conceptual cost estimates for transportation tunnel projects at the feasibility stage to aid in making investment decisions. Past studies have emphasized that tunnel-project costs have been significantly underestimated, and cost uncertainties and risks have been identified as the cause of cost under or overestimation. A broad understanding of the factors that contribute to cost underestimation is important as it enables researchers and estimators to develop appropriate functions, evaluate, and implement them to produce realistic cost estimates. This study was aimed at developing parametric cost estimation functions and quantifying their risks for transportation tunnel projects. A comprehensive background study of more than 39 published articles on transportation tunnel infrastructure projects was conducted through a systematic literature review and 40 key estimating parameters that may impact project costs and the associated project logistics were identified. Data from completed tunnel projects were collected and used to develop the parametric cost equations. Exploratory analyses were first performed to discover the correlations among tunnel costs and tunnel cost parameters/drivers. The purpose of this effort was to assess if a relationship existed between tunnel variables and tunnel project cost estimates. Parametric cost estimation functions were then developed for different tunnel applications. There has been no comprehensive study performed to date to develop parametric cost estimation functions that incorporated risk and uncertainty for transportation tunnel projects. Two representative sample case studies were performed and Monte Carlo simulation was used to quantify the associated risks. The results from the case studies illustrate the need to use appropriate techniques to simulate tunnel costs and quantify the risks associated with the estimates. The findings of the study provide a methodology to estimate the costs of transportation tunnels and quantify the uncertainties and risks associated with the costs. The methodology developed in this research could help reduce the incidence of project cost underestimation and alleviate some of the controversies surrounding cost overruns in transportation tunnel projects.