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Studies on the relationships among functional limitations, recurrent falls, and knee osteoarthritis remain limited. This cross-sectional observational study examined the associations among recurrent falls, functional limitations, and knee osteoarthritis and evaluated whether functional limitations mediated the relationship between recurrent falls and knee osteoarthritis. After excluding participants younger than 45 years and those with missing data for core variables and covariates, 2,278 participants from the CHARLS 2015 survey were included in complete-case analysis. Spearman correlation analysis was used to assess the correlations among recurrent falls, functional limitation score, and knee osteoarthritis. Because knee osteoarthritis was treated as a binary outcome, multivariable logistic regression was used to evaluate its association with recurrent falls. Mediation analysis was performed within a bootstrap mediation framework based on a linear mediator model and a logistic outcome model, with recurrent falls as the independent variable, functional limitation score as the mediator, and knee osteoarthritis as the dependent variable. Recurrent falls were significantly associated with higher odds of knee osteoarthritis in the adjusted model. After the functional limitation score was added to the model, recurrent falls remained significantly associated with knee osteoarthritis, and the functional limitation score was also significantly associated with knee osteoarthritis. Bootstrap mediation analysis showed a total effect of 0.093 (95% CI: 0.050–0.138), a direct effect of 0.079 (95% CI: 0.037–0.123), and an indirect effect through functional limitations of 0.014 (95% CI: 0.006–0.023), accounting for 14.92% of the total effect. These findings support a statistically significant mediation pattern in which functional limitations serve as an intermediate factor in the association between recurrent falls and knee osteoarthritis. These results highlight the importance of integrating fall-risk assessment and functional status evaluation into health management for knee osteoarthritis in middle-aged and older adults.