Osteoarthritis of the knee (OAK) is characterized by pain, limitation of joint mobility, and significant deterioration of proprioception resulting in functional decline. This study assessed proprioception in OAK patients following two ten-day rehabilitation programs using the Orthyo® system. Fifty-four study participants with clinical symptoms and radiological signs of OAK were randomly divided into an exercise group (n = 27) or a manual therapy group (n = 27). The control group consisted of 27 volunteers with radiological signs of OAK, but with no clinical symptoms or prior history of rehabilitation. The following parameters were assessed: knee proprioception using inertial sensors and a mobile application, patients’ function using Western Ontario and McMaster Universities osteoarthritis index (WOMAC), and pain intensity using the visual analog scale (VAS). Following rehabilitation, knee proprioception tests did not improve in either study group. Both study groups showed significant improvement of the WOMAC-assessed function (exercise group: p < 0.01, manual therapy group: p = 0.01) and a significant decrease (p < 0.01) of VAS-assessed pain following rehabilitation, but the post-therapy results did not differ significantly between the aforementioned groups. The Orthyo® system provided a quick and accurate assessment of the knee joint position sense. There was no direct relationship between functionality, pain, and proprioception threshold in the knee joint.