Our previous research showed that soluble (SC II) and insoluble (IC II) undenatured type II collagen had significant differences during gastrointestinal digestion in vitro, and SC II exposed more type II collagen with triple helix structure. However, the differences in their in vivo digestive characteristics, improvement on osteoarthritis (OA), and possible mechanisms have not been elucidated. The aim of this study was to explore these issues. After oral administration of SC II and IC II, the joint swelling of OA rats significantly reduced, and the weight bearing ratio of right hind limb significantly increased, especially in SC II group (raised to 48%). The Mankin and OARSI scores decreased by 35% and 48% in SC II group, respectively. SC II and IC II increased the mRNA expression of anti-inflammatory factors and the proportion of regulatory T cells (Treg). Importantly, type II collagen released by IC II during in vivo gastrointestinal digestion was far less than SC II, which explained the higher ability of SC II to induce immune tolerance in small intestine than IC II. Bioinformatics analysis showed that the differential genes between model and control were significantly enriched in PI3K/AKT, PPAR and AMPK signalling pathways, and 24 hub genes were analyzed. SC II significantly down-regulated the mRNA expression of Il6, Ccl7, NF-κB, AKT and up-regulated the mRNA expression of Scd1. These results showed that SC II was superior to IC II in improving OA by inducing immune tolerance and could regulate key biomarkers and signalling pathways in OA rats.