Background: Knee osteoarthritis (OA), also known as degenerative arthritis, causes a progressive loss of articular cartilage. In recent years, there has been a shift in the understanding of OA from a “wear and tear” disease to an “inflammatory” condition. Aims and Objectives: The objective of this study was to assess the level of inflammation and to evaluate the relationship between inflammation, pain, physical functioning, and Kellgren Lawrence (KL)-grade in patients with knee OA. Materials and Methods: Sixty patients with radiographic evidence of knee OA (KL Grade I/II/III) were cross-sectionally analyzed. Data about their anthropometry, inflammatory markers high-sensitivity C-reactive protein (hsCRP), erythrocyte sedimentation rate-(ESR), pain, and physical functioning were collected. Results: The mean hsCRP among the patient population was 4.6 ± 4.0 mg/L and the mean ESR was 40.4 ± 21.8 mm/h. There was a strong significant association of visual analog scale (VAS) pain score with hsCRP (r = 0.353; P = 0.005) and ESR (r = 0.269; P = 0.036). There was a strong significant association of Western Ontario and McMaster Universities OA Index score with hsCRP (r = 0.415; P = 0.001) and ESR (r = 0.413, P = 0.001). However, there was no significant difference in hsCRP or ESR when classified according to KL-grade (P > 0.05). Conclusion: The level of inflammation is high in knee OA patients. Inflammation is significantly associated with pain intensity and physical functioning in knee OA patients. However, there is no significant difference in hsCRP, ESR, and VAS when classified according to KL-grade. This emphasizes the need to study inflammatory markers in addition to radiographic evidence for informed clinical decision-making.