The application of autologous chondrocytes in cartilage repair procedures is associated with several disadvantages, including injury of healthy cartilage in a preceding surgery frequently resulting in formation of inferior fibrocartilage at defect sites. In order to improve the quality of regeneration, adult mesenchymal stem cells (MSC) are regarded as a promising alternative. The great challenge, when considering MSC for articular cartilage repair, is to generate cells with features of stable chondrocytes which are resistant to hypertrophy and terminal differentiation, as found in hyaline articular cartilage. Common in vitro protocols for chondrogenic differentiation of MSC successfully induce expression of multiple cartilage-specific molecules, including collagen type II and aggrecan, and result in a chondrocyte-like phenotype. However, in vitro chondrogenesis of MSC additionally promotes induction of fibrocartilage-like features such as expression of collagen type I, and hypertrophy, as demonstrated by up-regulation of collagen type X, MMP13 and ALP-activity. As a consequence, differentiated MSC pellets undergo mineralisation and vascularisation after ectopic transplantation in a process similar to endochondral ossification. This review discusses the complexity and entailed challenges when considering MSC from various sources for clinical application and the necessity to optimise chondrogenesis by repressing hypertrophy to obtain functional and suitable cells for cartilage repair.