Since strengthening interventions have had a lower-than-expected impact on patient function in studies of knee osteoarthritis (OA) and it is known that laxity influences muscle activity, this study examined whether the relationship between strength and function is weaker in the presence of laxity. One hundred sixty-four patients with knee OA were studied. Knee OA was defined by the presence of definite osteophytes, and patients had to have at least a little difficulty with knee-requiring activities. Tests were performed to determine quadriceps and hamstring strength, varus-valgus laxity, functional status (Western Ontario and McMaster Universities Osteoarthritis Index Physical Functioning subscale [WOMAC-PF] and chair-stand performance), body mass index, and pain. High and low laxity groups were defined as above and below the sample median, respectively. Strength and chair-stand rates correlated (r = 0.44 to 0.52), as did strength and the WOMAC-PF score (r = -0.21 to -0.36). In multivariate analyses, greater laxity was consistently associated with a weaker relationship between strength (quadriceps or hamstring) and physical functioning (chair-stand rate or WOMAC-PF score). Varus-valgus laxity is associated with a decrease in the magnitude of the relationship between strength and physical function in knee OA. In studies examining the functional and structural consequences of resistance exercise in knee OA, stratification of analyses by varus-valgus laxity should be considered. The effect of strengthening interventions in knee OA may be enhanced by consideration of the status of the passive restraint system.