A Chinese herbal preparation, SiMiaoFang (SMF), has been used clinically for treating arthralgia by virtue of its anti-inflammatory and pain-relieving activities. However, no evidence base links SMF to anti-osteoarthritis (OA), particularly its link to inhibiting cartilage matrix degradation. In this study, we undertook a characterization of anti-OA activity of SMF using an in vivo rat model induced by anterior cruciate ligament transection and medial meniscus resection (ACLT+MMx) together with in vitro studies with chondrocytes for further molecular characterization. ACLT+MMx rats were treated with SMF at doses of 0.63, 1.25, and 2.5 grams/kg per day for 6 weeks. SMF treatments significantly inhibited cartilage matrix degradation, as indicated by increasing proteoglycan and collagen content, particularly type II collagen expression in articular cartilage, decreasing CTX-II (collagen type II degradation marker), and increasing CPII (collagen type II synthesis marker) in circulation. Moreover, SMF suppressed synovial inflammation and inhibited release of interleukin-1β (IL-1β) and tumor necrosis factor-α in serum. The levels of serum prostaglandin E₂ and nitric oxide productions were decreased via suppression of the production of cyclooxygenase-2 and inducible nitric oxide synthase, respectively. Importantly, SMF interfered with OA-augmented expression of matrix metalloproteinases (MMPs) -3 and -13 and aggrecanases (ADAMTS) -4 and -5, which are considered to be key enzymes in cartilage matrix degradation, and simultaneously augmented OA-reduced tissue inhibitors of metalloproteinases (TIMPs) -1 and -3 expression in the joints. The largest changes in these parameters were found at the highest dose. Meanwhile, SMF significantly decreased MMP-3 and -13 and increased TIMP-1 and -3 at mRNA and protein levels in IL-1β-induced chondrocytes. These findings provide the first evidence that SMF effectively treats OA by inhibiting cartilage matrix degradation.