This paper deals with the matter of identifying the currency that if the given sample of currency is fake. Different traditional strategies and methods are available for fake currency identification based on the colors, width, and serial numbers mentioned. In the advanced age of Computer science and high computational methods, various machine learning algorithms are proposed by image processing that gives 99.9% accuracy for the fake identity of the currency. Detection and recognition methods over the algorithms include entities like color, shape, paper width, image filtering on the note. This paper proposes a method for fake currency recognition using K-Nearest Neighbours followed by image processing. KNN has a high accuracy for small data sets making it desirable to be used for the computer vision task. In this, the banknote authentication dataset has been created with the high computational and mathematical strategies, which give the correct data and information regarding the entities and features related to the currency. Data processing and data Extraction is performed by implementing machine learning algorithms and image processing to acquire the final result and accuracy.