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Obesity exacerbates pain and functional limitation in persons with knee osteoarthritis (OA). In the Weight Loss and Exercise for Communities with Arthritis in North Carolina (WE‐CAN) study, a community‐based diet and exercise (D + E) intervention led to an additional 6 kg weight loss and 20% greater pain relief in persons with knee OA and body mass index (BMI) >27 kg/m2relative to a group‐based health education (HE) intervention. We sought to determine the incremental cost‐effectiveness of the usual care (UC), UC + HE, and UC + (D + E) programs, comparing each strategy with the “next‐best” strategy ranked by increasing lifetime cost. We used the Osteoarthritis Policy Model to project long‐term clinical and economic benefits of the WE‐CAN interventions. We considered three strategies: UC, UC + HE, and UC + (D + E). We derived cohort characteristics, weight, and pain reduction from the WE‐CAN trial. Our outcomes included quality‐adjusted life years (QALYs), cost, and incremental cost‐effectiveness ratios (ICERs). In a cohort with mean age 65 years, BMI 37 kg/m2, and Western Ontario and McMaster Universities Osteoarthritis Index pain score 38 (scale 0–100, 100 = worst), UC leads to 9.36 QALYs/person, compared with 9.44 QALYs for UC + HE and 9.49 QALYS for UC + (D + E). The corresponding lifetime costs are $147,102, $148,139, and $151,478. From the societal perspective, UC + HE leads to an ICER of $12,700/QALY; adding D + E to UC leads to an ICER of $61,700/QALY. The community‐based D + E program for persons with knee OA and BMI >27kg/m2could be cost‐effective for willingness‐to‐pay thresholds greater than $62,000/QALY. These findings suggest that incorporation of community‐based D + E programs into OA care may be beneficial for public health.