Objective. To establish the impact of knee joint laxity on the relationship between muscle strength and functional ability in osteoarthritis (OA) of the knee. Methods. A cross-sectional study of 86 patients with OA of the knee was conducted. Tests were performed to determine varus-valgus laxity, muscle strength, and functional ability. Laxity was assessed using a device that measures the angular deviation of the knee in the frontal plane. Muscle strength was measured using a computer-driven isokinetic dynamometer. Functional ability was assessed by observation (100-meter walking test) and self report (Western Ontario and McMaster Universities Osteoarthritis Index [WOMAC]). Regression analyses were performed to assess the impact of joint laxity on the relationship between muscle strength and functional ability. Results. In regression analyses, the interaction between muscle strength and joint laxity contributed to the variance in both walking time (P = 0.002) and WOMAC score (P = 0.080). The slope of the regression lines indicated that the relationship between muscle strength and functional ability (walking time, WOMAC) was stronger in patients with high knee joint laxity. Conclusion. Patients with knee OA and high knee joint laxity show a stronger relationship between muscle strength and functional ability than patients with OA and low knee joint laxity. Patients with OA, high knee joint laxity, and low muscle strength are most at risk of being disabled.