Hand osteoarthritis (OA) is associated with pain, reduced grip strength, loss of range of motion (ROM), and joint stiffness, leading to impaired hand function and difficulty in performance of daily living activities. Mud bath therapy has been reported to play a primary role in the prevention and management of OA. Thus, we planned to conduct a study aimed at investigating the effects of peloid therapy on pain, functional state, grip strength, and the quality of life and performing a comparative analysis of the outcomes of peloid therapy. In this randomized, controlled, single-blind, pilot study, patients (n = 33) underwent peloid therapy over 2 weeks, 5 sessions a week, for a total of 10 sessions and home exercise program in group 1. Patients in group 2 (control, n = 30) received only the same home exercise program as in group 1. Patients were evaluated just before, and 2 and 6 weeks after the start of the study with Visual Analogue Scale (VAS), Australian/Canadian Hand Osteoarthritis Index (AUSCAN), Health Assessment Questionnaire (HAQ), hand grip strength (HGS), and pinch strength (PS). Statistically significant improvements were observed in all parameters assessed at week 2 and week 6 in the group 1 (p < 0.05). Statistically significant differences were observed in HGS scores in the group 2 at week 2 and in AUSCAN scores at week 6 (p < 0.05). Intergroup comparisons of the scores revealed significant differences between the peloid therapy group and control group in VAS, HAQ, AUSCAN, HGS, and PS scores at week 2 and week 6 (p < 0.05). This study demonstrates that peloid therapy might be an effective and confident treatment modality in the management of symptomatic osteoarthritis of the hand and may provide effective pain control and improvements in the hand functions, quality of life, and grip strength.