The NRL held a moment of silence at Sydney Stadium for Newcastle fans caught up in a horrific crash on Saturday along the grand final parade route.
Thousands of supporters watched the Knights face the Sydney Roosters in the title decider, despite scarce tickets for Accor Stadium.
More than 22,000 gathered at the Knights' home ground, McDonald Jones Stadium, while fans also filled pubs across Newcastle.
The city's supporters had waited 25 years to see their team reach a grand final.
Luke Lawson, a 36-year-old lifelong Newcastle resident and Knights supporter, said the club's fans had a unique spirit.
"All week there has been a massive buzz around the town. It's just insane," he told AAP.
"I don't reckon you'd get this at any other club in the NRL. Like, tell me another club that would have this."
After a tense start, Francis Manuleleua scored the first try for Newcastle in the 15th minute.
Captain Kalyn Ponga then ran 95 metres after collecting a loose ball, sending supporters into celebration and giving the Knights a 12-6 halftime advantage.
Mark Nawaqanitawase scored late in the first half, then crossed again in the 59th minute to put the Roosters ahead.
Greg Marzhew's try in the 76th minute revived hopes, but Newcastle's bid for its first premiership in a quarter-century ended without the home-city celebration fans had hoped for.