Fu Yuan Capsule (FYC) has been clinically used for osteoarthritis (OA) and its related diseases for many years in China. However, its pharmacological mechanism remains unclear. This study aimed to investigate the potential chondroprotective effects of FYC on articular cartilage. Rat OA model was induced by anterior cruciate ligament transection. A group of rats was treated with FYC for 12 weeks. Joint structure, types I and II collagen, and proteoglycan were evaluated by histological examination. The expression of C-terminal crosslinking telopeptide of type II collagen, hydroxyproline, a disintegrin and metalloproteinase with thrombospondin motifs, matrix metalloproteinase, interleukin-1 beta, nitric oxide, prostaglandin E2, heat-shock protein 70, transforming growth factor-beta, osteoprotegerin, and receptor activator of nuclear factor κB ligand were detected. Treatment with FYC could protect against articular cartilage injury. FYC treatment significantly decreased the extracellular matrix degradation factors and inflammatory mediators. Moreover, articular cartilage protective factors were increased in the FYC group. The current finding suggests that FYC protects articular cartilage in a rat OA model through various ways. Thus, it may be an effective agent for OA treatment.