Osteoarthritis (OA) is a major cause of disability in the adult population. The purpose of this study was to evaluate the effects of melatonin with graded dosage on extracellular matrix synthesis and cellular death in response to cartilage damage in vitro and in vivo. TNF-α reduced the viability of primary cultured chondrocytes and extracellular matrix protein, but melatonin at concentrations of 1 μm and 1 nm restored them. Rats with knee instability induced by intra-articular collagenase were used for the in vivo study. Joint parameters were significantly augmented in the collagenase injection-only group but not in the melatonin-alone or melatonin+exercise groups, as cartilage degeneration progressed. Serum TNF-α and IL-6 were upregulated by collagenase injection, which was attenuated by melatonin with and without exercise in the early phase. TGF-β1 mRNA was either conserved or enhanced by melatonin with and without exercise at the early phase. In particular, melatonin combined with exercise dramatically decreased the expression of not only catabolic mediators but also cellular death markers with lower mineralization. At the advanced phase, prolonged melatonin treatment promoted mineralization through caspase-3-mediated chondrocyte apoptosis. However, co-intervention induced extracellular matrix remodeling through increases in IL-6, EPAS-1, and MMP-13. Reconstructed micro-CT images showed that collagenase injection induced subchondral bone erosion, formation of parameniscal osteophytes, and reduction of trabecular bone thickness regardless of the intervention, which was minimized by combined intervention. In conclusion, we suggest that melatonin with treadmill exercise may have both preventive and synergistic effects on rescue from cartilage degeneration and is more effective in the initial phase.