Interest rate is a microeconomic indicator of the availability of funds necessary to foster growth. This is because it is the rate at which money is lent and borrowed that determines the cost and availability of credit. The study was carried out to examine the effect of interest rate on capital on the volume of credit and investment in the manufacturing industry in Nigeria. The specific objectives were to determine the effect of interest rates on capital on the total value added of manufacturing output in Nigeria, evaluate the effect of interest rates on capital on the domestic credit to private sector in Nigeria and examine the existence of a long run relationship between interest rate on capital, total value of manufacturing output and domestic credit to private sector in Nigeria. The study employed the classical linear regression model to investigate the effect of interest rate on capital on the volume of credit and investments of manufacturing sector in Nigeria. The classical linear regression model is the best model for the study due to the linear relationship that exists between the variables in the study. The result of the OLS regression analysis indicate that interest rate on capital has a negative effect on both manufacturing output and domestic credit to private sector within the period under study. However, interest rate on capital had an insignificant effect on manufacturing output, while it had a significant effect on the domestic credit to private sector. Consequently, the study recommended that the government provides adequate funding to manufacturing firms and investors, and try as much as possible to cut the rate of interest to a reasonable level.