Background: Despite numerous studies examining subjective clinical scores after meniscal allograft transplantation (MAT), research focusing specifically on functional measures is lacking. Purpose: To evaluate the serial changes in isokinetic muscle strength and dynamic balance during the first postoperative year after lateral MAT (LMAT). Study Design: Cohort study; Level of evidence, 3. Methods: A total of 55 patients who underwent LMAT underwent subjective functional assessment using the Lysholm and subjective International Knee Documentation Committee (IKDC) scores. The objective functions, evaluated using isokinetic muscle strength testing and the Y-balance test for dynamic postural stability, were recorded preoperatively and 6 and 12 months postoperatively. Magnetic resonance imaging (MRI) was performed at 2 days and 12 months postoperatively to evaluate the meniscal allograft extrusion and cartilage condition in the lateral compartment. At 12 months, patients with graft extrusion >3 mm on MRI were assigned to the extrusion group. Results: Significant improvements were observed in the Lysholm and subjective IKDC scores at 12 months postoperatively (both P < .001). The joint space width did not significantly increase ( P = .054). Coronal graft extrusion increased significantly ( P < .001). At 6 months postoperatively, isokinetic muscle strength tests indicated no significant reduction in the peak torque for knee extension ( P = .911). However, at 12 months, the peak torque was significantly increased ( P = .001), with the deficits improving from 38.3% to 18.1% ( P < .001). No significant changes were noted in the knee flexion strength. Dynamic postural stability showed a significant decrease in the Limb Symmetry Index (LSI) for the anterior reach at 6 months ( P = .004), but significant improvements were seen by 12 months, with the LSI values for the anterior, posteromedial, and posterolateral reaches all exceeding 90% ( P < .001). No significant differences in muscle strength or dynamic balance were found between the nonextrusion (n = 41) and extrusion (n = 14) groups at 12 months. Conclusion: The significant improvements in isokinetic muscle strength and dynamic postural stability achieved only by 12 months after LMAT underscores the necessity of a comprehensive rehabilitation program and caution against premature sports resumption.