Background No population-based studies have investigated how the impact of hip and knee joint disease may vary with increasing severity. Objective The purpose of this study was to evaluate health-related quality of life (HRQoL), work status, and health service utilization and costs according to severity of hip and knee joint disease. Design A national cross-sectional survey was conducted. Methods Five thousand individuals were randomly selected from the Australian electoral roll and invited to complete a questionnaire to screen for doctor-diagnosed hip arthritis, hip osteoarthritis (OA), knee arthritis, and knee OA. Severity was classified by means of Western Ontario and McMaster Universities Osteoarthritis Index (WOMAC) scores (range=0–100): <7=asymptomatic, 7–38=mild-moderate, and ≥39=severe. Health-related quality of life was evaluated by means of the Assessment of Quality of Life (AQoL) instrument (range=−0.04 to 1.00; scored worst-best). Self-reported data on work status and health service utilization were collected, with health care costs estimated with the use of government data. Results Data were available for 1,157 participants, with 237 (20%) reporting hip or knee joint disease. Of these, 16% (n=37) were classified as asymptomatic, 51% (n=120) as mild-moderate, and 27% (n=64) as severe. The severe group reported very low HRQoL (adjusted mean AQoL=0.43, 95% confidence interval [95% CI]=0.38–0.47) compared with the mild-moderate group (adjusted mean AQoL=0.72, 95% CI=0.69–0.75) and the asymptomatic group (adjusted mean AQoL=0.80, 95% CI=0.74–0.86). Compared with the asymptomatic group, the severe group was >3 times less likely to undertake paid work (adjusted odds ratio=0.28, 95% CI=0.09–0.88) and >4 times less likely to undertake unpaid work (adjusted odds ratio=0.24, 95% CI=0.10–0.62). Although physical therapy services were used infrequently, primary and specialist care utilization and costs were highest for the severe group. Limitations Other costs (including physical therapy consultations) were unavailable. Conclusions A clear pattern of worsening HRQoL, reduced work participation, and higher medical care utilization was seen with increasing severity of joint disease.