OBJECTIVE: To determine whether dietary intervention or knee strengthening exercise, or both, can reduce knee pain and improve knee function in overweight and obese adults in the community. DESIGN: Pragmatic factorial randomised controlled trial. SETTING: Five general practices in Nottingham. PARTICIPANTS: 389 men and women aged 45 and over with a body mass index (BMI) of > or = 28.0 and self reported knee pain. INTERVENTIONS: Participants were randomised to dietary intervention plus quadriceps strengthening exercises; dietary intervention alone; quadriceps strengthening exercises alone; advice leaflet only (control group). Dietary intervention consisted of individualised healthy eating advice that would reduce normal intake by 2.5 MJ (600 kcal) a day. Interventions were delivered at home visits over a two year period. MAIN OUTCOME MEASURES: The primary outcome was severity of knee pain scored with the Western Ontario McMaster (WOMAC) osteoarthritis index at 6, 12, and 24 months. Secondary outcomes (all at 24 months) included WOMAC knee physical function and stiffness scores and selected domains on the SF-36 and the hospital anxiety and depression index. RESULTS: 289 (74%) participants completed the trial. There was a significant reduction in knee pain in the knee exercise groups compared with those in the non-exercise groups at 24 months (percentage risk difference 11.61, 95% confidence interval 1.81% to 21.41%). The absolute effect size (0.25) was moderate. The number needed to treat to benefit from a > or = 30% improvement in knee pain at 24 months was 9 (5 to 55). In those randomised to knee exercise improvement in function was evident at 24 months (mean difference -3.64, -6.01 to -1.27). The mean difference in weight loss at 24 months in the dietary intervention group compared with no dietary intervention was 2.95 kg (1.44 to 4.46); for exercise versus no exercise the difference was 0.43 kg (-0.82 to 1.68). This difference in weight loss was not associated with improvement in knee pain or function but was associated with a reduction in depression (absolute effect size 0.19). CONCLUSIONS: A home based, self managed programme of simple knee strengthening exercises over a two year period can significantly reduce knee pain and improve knee function in overweight and obese people with knee pain. A moderate sustained weight loss is achievable with dietary intervention and is associated with reduced depression but is without apparent influence on pain or function. TRIAL REGISTRATION: Current Controlled Trials ISRCTN93206785.