Background Tuberculosis is one of the major infectious diseases and is both complex and serious. It is spread from person to person through the air, causing a public health burden, especially in low- and middle-income countries. This study aims to assess the knowledge on tuberculosis and the utilization of Directly-Observed Therapy, Short Course (DOTS) service from the public DOTS centers in Lalitpur district of Nepal. Method A structured questionnaire was used to collect data from 23 DOTS centers in Lalitpur district. Univariate and multivariate logistic regression was applied to assess the knowledge on tuberculosis and utilization of DOTS among people living with tuberculosis. Results Among 390 respondents, 80% of patients had knowledge of tuberculosis and 76.92% utilized the DOTS service from the DOTS center. People of higher age (50–60 years) [aOR; 13.96, 95% CI 4.79,40.68], [aOR; 10.84,95% CI 4.09,28.76] had significantly more knowledge on TB and utilization of the DOTS service compared to the younger group. Additionally, those who completed twelfth class [aOR; 2.25, 95% CI 0.46,11.07] and [aOR;2.47, 95% CI 0.51,11.28] had greater knowledge of Tuberculosis and utilization of DOTS compared to those who had not completed twelfth class. Likewise, compared to urban residents, respondents in rural areas (aOR; 0.51, 95% CI 0.27,0.97) had less knowledge of tuberculosis, (aOR; 0.57, 95% CI 0.32,1) and less chance of utilization of the DOTS service from the DOTS center. Conclusion Approximately one quarter of patients did not have adequate knowledge of tuberculosis and were not utilizing the DOTS service, particularly in younger age groups, people living in a combined family, with no education, poor economic position, and from rural areas. Findings of this study revealed that some specific programs are needed for enhancing the knowledge and utilization of DOTS, particularly for those patients whose economic situations extended from low to mid range.