Paeonol, the main active component isolated from the root of Paeonia suffruticosa, has been reported to have anti-inflammatory properties. However, the effects of paeonol on osteoarthritis (OA) remain unclear. The aim of this study was to investigate the anti-inflammatory effects and mechanism of paeonol in IL-1β-induced human OA chondrocytes as well as mice OA models. Human OA chondrocytes were pretreated with different concentrations of paeonol 2 h prior to IL-1β (10 ng/mL) stimulation for 24 h. Nitric oxide (NO) production was determined by Griess method. The levels of prostaglandin E2 (PGE2), matrix metalloproteinase 1 (MMP-1), MMP-3, and MMP-13 were assessed by ELISA. Inducible nitric oxide synthase (INOS), COX-2, and PI3K/Akt/NF-κB-related signaling molecules production were measured by Western blot. In vivo, mice OA models were established by destabilization of the medial meniscus. One month after surgery, mice in paeonol-treated group were given intraperitoneal injection of paeonol in 30 mg/kg every day, while mice of vehicle-treated group were injected with DMSO under the same conditions. Hematoxylin and eosin as well as Safranin-O staining were applied to assess the severity of cartilage lesions. The results showed that pretreatment with paeonol could inhibit IL-1β-induced NO and PGE2 production. Meanwhile, the overproduction of INOS, COX-2, MMP-1, MMP-3, and MMP-13 were also reversed by paeonol. Moreover, paeonol was found to inhibit IL-1β-induced NF-κB activation, PI3K, and AKT phosphorylation. In vivo, treatment with paeonol exhibited less cartilage degradation and lower Osteoarthritis Research Society International scores in mice OA models. In conclusion, these results suggest that paeonol may be a potential therapeutic agent in the treatment of OA.