The anti-inflammatory/immunomodulatory effects of Teucrium montanum L. (TM), a plant distributed in the Mediterranean region, have been insufficiently examined. The effects of the TM ethanol extract were tested in a rat collagen-induced arthritis (CIA) model of rheumatoid arthritis. LC-MS was used for the phytochemical analysis of the TM extract. Dark Agouti rats were immunized with bovine type II collagen (CII) in incomplete Freund's adjuvant for CIA, and treated with 100 or 200 mg/kg of TM extract daily via oral administration. Clinical and histopathological evaluations and a flow cytometric analysis of the phenotypic and functional characteristics of splenocytes and draining lymph node cells were performed. The cytokines in the paw tissue culture supernatants and anti-CII antibodies in serum were determined by ELISA. The TM extract, with the dominant components verbascoside and luteolin 7-O-rutinoside, reduced the arthritic score and ankle joint inflammation in CIA rats, promoted the antioxidant profile in serum, and lowered pro-inflammatory TNF-α, IL-6 and IL-1β production. It suppressed the activation status of CD11b+ cells by lowering CD86, MHCII and TLR-4 expression, and promoted the Th17/T regulatory cell (Tregs) balance towards Tregs. A lower frequency of B cells was accompanied by a lower level of anti-CII antibodies in treated rats. These findings imply the favorable effect of TM extract on the clinical presentation of CIA, suggesting its anti-inflammatory/immunomodulatory action and potential therapeutic effect.