Knob and tube wiring, also known as "k&t," was the common residential wiring method from the beginning of residential electric usage until the mid-twentieth century. The wires were run individually with no ground wire, so each circuit only has two wires, not three. Hire an electrician to install the connection to the main power and an appropriately sized circuit breaker panel. This will ensure safety, meet building code and remove the old wiring. You can then replace each circuit's wiring, switches, fixtures and outlets.
Remove all electric elements including outlets, switches and light fixtures. Many of these will be set in the walls without junction boxes. Remove the cover plates, locate the screws or nails holding the element in place and remove them. Use a screwdriver to loosen the contact screws on each element and pull the wires loose.
Measure the distance from each switch and outlet to the breaker box and from each switch to its light fixture. Cut standard household three-conductor cable to fit each run. Wrap masking tape around the end of each, with a written label indicating where it goes.
Strip the ends of the wires at each end of each cable. Fit the wire into the stripper and close it firmly, pulling toward the end of the wire to remove the insulation.
Tie one old wire from each element to the end of the cable you will be replacing it with. Wrap duct tape around the wires to connect them firmly. Pull the old wiring up through the wall into the attic, pulling the new wire into place behind it. Where necessary, widen holes in wall caps to allow the wire to pull through. Use a spade bit to bore these holes out to 3/4 inch.
Run the wire from the top of the wall, above each switch or outlet to the breaker panel. Bore through joists where necessary to keep the wires below floor level. Use the 3/4-inch paddle bit for that purpose. Feed the new wire across the attic to the top of the wall over the breaker panel. Do this for each circuit.
Drill a hole in the top of the wall over the panel and feed a stiff wire or wire snake up through it, from the breaker panel. Attach wires to this and pull them down into the breaker panel below. Do this for each circuit.
Attach the cable to a circuit breaker. Attach the black wire of each cable to the front, or inside screw of a breaker. Fit the wire into the hole and tighten the screw to fasten. Attach the white wire to the rear, or outside end of the breaker. Attach the green wire to the ground punch block in the top corner of the box in the same way. Snap each breaker into an empty bay in the breaker box.
Fit an old work junction box into each outlet, switch and fixture hole. Feed the wires into them through a knock out in the boxes side or top. These boxes are designed to clamp to the drywall, or lath and plaster without needing to be attached to the frame. Fit the box into the hole and tighten the two screws to anchor it in place.
Attach the black wire to the top screw of each outlet and the white wire to the bottom screw. Wrap the wire around the screw and tighten it with a screwdriver. Attach the black wire from the breaker box cable to the top screw of each switch and the white wire to the bottom. Attach the green wire to the green ground screw. Fit outlets and switches into their junction boxes and install the top and bottom mounting screws with a screwdriver. Fit a face plate on each element and install the mounting screws.
Match the wires from the cable to the wire leads on the back of light fixtures, white to white, black to black and green to green. Twist a wire nut onto each pair of wires, turn it clockwise to tighten. Fit the base plate of the fixture to the junction box, according to the included instructions and install the mounting screws into the junction box to hold it in place.
Restore the power to the circuit breaker panel and turn the circuit breakers on. Test each circuit.