Benzothiazine and pyrazole derivatives possess anti-inflammatory properties. Previously, synergism of both heterocyclic moieties into a single nucleus has shown to produce biologically active N'-arylmethylidene-2-(3,4-dimethyl-5,5-dioxidopyrazolo(4,3-c)(1,2)benzothiazin-2(4H)yl)acetohydrazides) compound. Present study investigates the anti-arthritic effect and possible mechanism of 2,4-dihydroxyphenyl derivative (DHP) in Freund׳s complete adjuvant-induced arthritic rat model. Ankle joint histopathology was performed with Hematoxylin & Eosin staining, while serum C-reactive protein (CRP) levels were measured by agglutination method. mRNA expression levels and protein levels of proinflammatory markers were measured by real time reverse transcription polymerase chain reaction and Enzyme linked immunosorbent assay (ELISA), respectively. in vitro Concanavalin A (ConA)-stimulated splenocyte proliferation was also measured by ELISA reader. DHP treatment reduced the macroscopic arthritic score, CRP levels, synovial inflammation, bone erosion and pannus formation. Levels of cyclooxygenase-1 (COX-1), cyclooxygenase-2 (COX-2), Prostaglandin-E2 (PGE2), and 5-lipoxygenase (5-LOX), were significantly attenuated by DHP. It also significantly decreased the levels of toll-like receptor 2, nuclear factor-kappaB (NF-ĸB), and tissue necrosis factor-α (TNF-α) and non-significantly elevated interleukin-4 (IL-4) levels. Piroxicam, used as reference drug, significantly reduced the levels of COX-1, COX-2, PGE2, NF-ĸB, and TNF-α, but did not show reduction in 5-LOX and toll-like receptor 2 levels. However piroxicam significantly enhanced the levels of IL-4. Both DHP and piroxicam suppressed ConA-stimulated splenocyte proliferation. DHP normalized all altered hematological markers and did not show any sign of hepatotoxicity or nephrotoxicity as determined by alanine transaminase, aspartate aminotransferase, urea, and creatinine levels. Results showed that DHP possesses significant anti-arthritic activity which may be attributed to its immunomodulatory and anti-inflammatory effects.