OBJECTIVES: There is evidence supporting the effectiveness of both exercise therapy and manual therapy for hip and knee osteoarthritis (OA), but no clinical trials or economic evaluations have been reported of their use alone or in combination compared against usual medical care. METHODS: We conducted a cost-utility analysis alongside a randomized controlled trial. Adults meeting the American College of Rheumatology criteria for hip or knee OA were randomly allocated to either: a) exercise therapy; b) manual therapy; c) combined exercise therapy and manual therapy; or d) usual medical care only. Changes in the Western Ontario and McMaster (WOMAC) osteoarthritis index, physical performance measures, quality adjusted life years (QALY), and economic costs (presented in 2009 NZD) were assessed at 12 months, blind to group allocation. Incremental cost-utility ratios (ICER) with 95% CIs and cost-effectiveness acceptability curves were reported, from both healthcare system and societal perspectives. RESULTS: Of 206 participants recruited, 193 (93.2%) were retained at follow-up. Intention-to-treat analysis showed effect sizes for WOMAC score changes at one year compared with the usual care group of 0.53 (Cohen’s d; 95% CI .14, .92) for manual therapy alone, 0.32 (-.07, .71) for exercise therapy alone, and 0.31 (-.09, .70) for combined exercise therapy and manual therapy. QALY gain and physical performance test outcomes significantly favoured the exercise therapy group. Exercise therapy resulted in incremental cost-utility ratios regarded as cost-effective at a willingness-to-pay threshold of 2x GDP per-capita, but was not cost saving. Manual therapy was cost saving relative to usual care from the societal perspective. CONCLUSIONS: Both exercise physiotherapy and manual physiotherapy, but not combined therapy, provided incremental benefit over usual care alone at one year follow-up. From the perspective of the New Zealand health system, exercise therapy was best value, and from the perspective of society, manual therapy saved costs.