Lateral wedge insole (LWI) can improve lower limb alignment and relieve pain in patients with early to mid-stage knee osteoarthritis. However, its effect on biomechanics of foot and ankle remains to be elucidated. The aim of this study was to investigate the biomechanical effects of LWI on the internal tissues of the foot and ankle, including foot bones, joints, and ligaments. Methods The study developed and validated a three-dimensional finite element model of the foot-insole-ground and explored plantar pressure distributions, contact pressures on joints, and peak stresses on metatarsals and major ligaments in barefoot and insoles intervention models at three gait instants. Results The 5° LWI model reduced peak plantar pressure by 65.8% compared to the barefoot model. Insole interventions decreased the peak contact pressure at the cuneonavicular joint, but increased the peak contact pressure at the subtalar joint and peak stress at the fourth and fifth metatarsals. Conclusions This study quantitatively assessed the biomechanical effects of LWI on various parts of the foot and ankle, and suggested a design that could appropriately reduce the inclination angle of LWI at the fourth and fifth metatarsals.