Injury to the capsular ligaments of the knee commonly occurs in conjunction with cruciate ligament injury. An untreated grade III sprain can lead to recurrent meniscal injury, failure of cruciate ligament reconstruction, and arthrosis. Careful clinical examination is necessary to identify injuries to discrete ligaments and estimate the severity of injuries not discernable on imaging studies. A classification system of capsular injury is useful to link the diagnosis to a treatment algorithm. Anatomically based surgical procedures for acute and chronic sprains of the posteromedial, anterolateral, and posterolateral capsular structures have been proven in long-term outcome studies. The goal is to restore the anatomy by repair (for an acute sprain) or capsular shift (for a chronic sprain), rather than to substitute extra-articular tendon routing.