This study aimed to assess the clinical efficacy of umbilical cord mesenchymal stem cells (hUC-MSCs) from different passages (P3, P8, and P13) in the treatment of knee osteoarthritis (OA) and explore the underlying mechanisms. The hUC-MSCs from each passage were characterized and evaluated for their stemness, migration, proliferation, and marker expression. Rats with OA were treated with hUC-MSCs from each passage, and the therapeutic effects were assessed based on knee swelling, discomfort, and pathological examination of the knee joint. Co-culture experiments were conducted to examine the ability of hUC-MSCs to stimulate type II collagen synthesis and inhibit MMP13 expression in chondrocytes. Telomere length and telomerase activity of hUC-MSCs from each passage were measured to investigate the reasons for the observed differences in clinical efficacy. The results revealed that P3 and P8 hUC-MSCs exhibited superior osteogenic and chondrogenic differentiation potential compared to P13, while P13 demonstrated stronger adipogenic differentiation. The wound healing rate was significantly higher in the P3 and P8 groups compared to P13. All hUC-MSC groups expressed high levels of CD90 and CD105, indicating their mesenchymal stem cell characteristics, while CD31 and CD45 were not expressed. CD105 expression was significantly reduced in the P13 group. In the treatment of rat osteoarthritis, there were no significant differences in knee swelling, discomfort, Mankin scores, and pathological findings between P3 and P8 hUC-MSC treatments. However, there was a significant difference between the 8th and 13th passages. Co-culture experiments showed that hUC-MSCs from P3 and P8 enhanced type II collagen synthesis and reduced MMP13 expression in chondrocytes. Although no significant difference was observed between the P3 and P8 groups, a significant difference was found between the P13 and P8 groups. Telomere length analysis revealed that P13 samples had significantly shorter telomeres compared to both P3 and P8. The telomerase activity was positive in P3 and P8 hUC-MSCs, indicating no significant difference between these passages, while it was negative in P13 hUC-MSCs. In conclusion, P3 and P8 hUC-MSCs exhibited superior therapeutic potential for knee osteoarthritis compared to P13, possibly due to their enhanced differentiation capacity and telomerase activity.