Osteoarthritis (OA) is a joint disease characterized by inflammation and cartilage degradation. Accumulating evidence has demonstrated that luteolin, a natural flavonoid, has anti-inflammatory and anticatabolic effects. The present study aimed to assess the protective effect of luteolin on interleukin (IL)-1β-stimulated rat chondrocytes and a monosodium iodoacetate (MIA)-induced model of OA. Rat chondrocytes were pretreated with luteolin (0, 25, 50, and 100 μM for 12 h) prior to stimulation with IL-1β (10 ng/ml for 24 h). Nitric oxide (NO) production was determined using the Griess method. Production of prostaglandin E2 (PGE2), tumor necrosis factor-α (TNF-α), and matrix metalloproteinase-2, -8, and -9 (MMP-2, MMP-8 and MMP-9) was measured by an enzyme-linked immunosorbent assay (ELISA). Protein levels of inducible nitric oxide synthase (iNOS), cyclooxygenase-2 (COX-2), MMP-1, MMP-3, MMP-13, p65, p-p65, IκB, and p-IκB were determined by Western blotting. The OA rats received luteolin (10 mg/kg/day) by gavage in vivo. Morphological and ultrastructural scanning electron microscopy (SEM) observations were performed to assess the severity of OA at 45 days following MIA injection. Collagen II protein expression was determined by immunohistochemistry. In this study, luteolin considerably reduced the IL-1β-induced production of NO, PGE2, TNF-α, MMP-2, MMP-8 and MMP-9 and the expression of COX-2, iNOS, MMP-1, MMP-3 and MMP-13. Luteolin reversed the degradation of collagen II induced by IL-1β. Luteolin also significantly inhibited IL-1β-induced phosphorylation of NF-κB in vitro. Luteolin treatment prevented cartilage destruction and enhanced collagen II expression in OA rats in vivo. Overall, our findings suggest that luteolin may be a useful therapeutic agent for patients with OA.