Knee osteoarthritis (OA) is a prevalent condition in older adults that often results in impaired gait and balance, increased risk of falls, and reduced quality of life. Conventional clinical assessments may not adequately capture these deficiencies. This study investigated the gait and balance of elderly individuals with knee OA using wearable inertial measurement units (IMUs). Forty-four participants with Kellgren–Lawrence grade 2–3 knee OA (71.23 ± 5.75 years) and forty-five age-matched controls (70.87 ± 4.30 years) completed dynamic balance (balance board), static balance (single-leg stance), ‘timed up and go’ (TUG), and normal walking tasks. Between 2 and 8 IMUs, depending on the task, were placed on the head, chest, waist, knees, ankles, soles, and balance board to record kinematic data. Balance was quantified using absolute angular velocity and linear acceleration, with group differences analyzed by MANOVA and Bonferroni-adjusted univariate tests. The participants with knee OA exhibited greater gait asymmetry, although the difference was not significant. However, they consistently demonstrated higher absolute angular velocities than controls across most body segments during static and dynamic tasks, indicating reduced postural stability. No group differences were observed in TUG performance. These findings suggest that IMU-based measures, particularly angular velocity, are sensitive to balance impairment detection in knee OA. Incorporating IMU technology into clinical assessments may facilitate early identification of instability and guide targeted interventions to reduce fall risk.