Background: Osteoarthritis (OA) is the most common rheumatologic problem affecting people all over the world. The economic impact of OA is significant due to the effect of disability, co morbid disease and the expense of treatment.Since the economic burden of OA increases every year, this study was conducted to analyse the cost of illness (healthcare cost) of knee OA by calculating the direct and indirect costs. Methods: This was a prospective observational study conducted in the Orthopedics department of Tertiary Care Hospital at Chittoor District for a period of 4 months (September 2017 -December 2017). OA patients of age greater than 40 years, either gender who stayed in hospital and out-patients were included in the study.All the relevant and necessary data of OA patients were collected and total direct as well as indirect costs was calculated by human capital method. Results: A total of 160 patients were enrolled during the study period. Out of 160 patients, 38 (23.7%) were male and 122 (76.3%) were female. The average total direct cost per OA patient was found to be INR 11521whereas indirect cost per OA patient was INR 8998. The sum of total direct cost and indirect cost was INR 20519. Conclusion: The cost estimates of our study were significant and found mainly due to direct costs though it is not statistically significant. This report may helpful in conducting future studies of economic evaluations and outcomes research.