Osteoarthritis (OA), a debilitating degenerative joint disease characterized by progressive cartilage degradation, chronic inflammation, and oxidative stress, necessitates innovative therapeutic interventions. This study aimed to develop and evaluate a transdermal delivery system comprising Ibudilast, a novel PDE4 inhibitor, to establish its effectiveness in the management of osteoarthritis. Ibudilast-BSA nanoparticles were prepared by desolvation and then incorporated into Carbopol 980 gel to form a nanogel formulation. Both the nanoparticles and the nanogel were evaluated by in vitro release, ex vivo permeation, and other parameters. The therapeutic efficacy of the nanogel batch was assessed in monosodium iodoacetate (MIA)-induced osteoarthritic rats using biochemical analysis, hematological assessment, radiographic examination, and histopathological evaluation. The developed nanoparticles had a uniform size of about 270.4 nm, a zeta potential of − 23.3 mV, and a drug encapsulation efficiency of 69.11%. The nanogel showed a skin-friendly pH (6.0), suitable viscosity, good spreadability, and sustained drug release (87.6% in 24 h). Ex vivo tests confirmed higher skin penetration (78.6%) compared to plain drug (24.3%). The topical PDE4 inhibitor nanogel showed significant therapeutic efficacy compared with the plain dispersion in MIA-induced OA rats, underscoring its therapeutic promise. The Ibudilast-loaded nanogel significantly reduced oxidative stress and inflammatory biomarkers while improving antioxidant levels and cartilage integrity in osteoarthritic rats. The Ibudilast-loaded BSA nanoparticle-incorporated Carbopol nanogel demonstrated therapeutic promise as an effective transdermal strategy for managing osteoarthritis. These findings deserve further investigation in chronic models and clinical settings to validate the translational potential of this novel formulation.