Among patients with knee osteoarthritis (OA), postmenopausal women are over-represented. The purpose of this study was to determine whether deficiency of female sex steroids affects OA progression and to evaluate the protective effect of treatment with a physiological dose of 17β-estradiol (E2) on OA progression using a murine model. Ovariectomy (OVX) of female mice was used to mimic a postmenopausal state. OVX or sham-operated mice underwent surgery for destabilization of the medial meniscus (DMM) to induce OA. E2 was administered in a pulsed manner for 2 and 8 weeks. OVX of OA mice did not influence the cartilage phenotype or synovial thickness, while both cortical and trabecular subchondral bone mineral density (BMD) decreased after OVX compared with sham-operated mice at 8 weeks post-DMM surgery. Additionally, OVX mice displayed decreased motor activity, reduced threshold of pain sensitivity, and increased number of T cells in the inguinal lymph nodes compared to sham-operated mice 2 weeks after OA induction. Eight weeks of treatment with E2 prevented cartilage damage and thickening of the synovium in OVX OA mice. The motor activity was improved after E2 replacement at the 2 weeks time point, which was also associated with lower pain sensitivity in the OA paw. E2 treatment protected against OVX-induced loss of subchondral trabecular bone. The number of T cells in the inguinal lymph nodes was reduced by E2 treatment after 8 weeks. This study demonstrates that treatment with a physiological dose of E2 exerts a protective role by reducing OA symptoms.