A co-culture strategy has been developed in this study wherein rabbit synovial mesenchymal stem cells (SMSCs) are co-cultured with growth factor (GF) transfected articular chondrocytes. Toward this end, both SMSCs and early passage rabbit articular chondrocytes that had been adenovirally transduced with transforming growth factor-beta 3 (TGF-beta3) gene were separately encapsulated in alginate beads and co-cultured in the same pool of chondrogenic medium. The chondrocytes act as transfected companion cells (TCCs) providing GF supply to induce chondrogenic differentiation of SMSCs that play the role of therapeutic progenitor cells (TPCs). Against the same TCC based TGF-beta3 release profile, the co-culture was started at different time points (Day 0, Day 10 and Day 20) but made to last for identical periods of exposure (30 days) so that the exposure conditions could be optimized in terms of initiation and duration. Transfection of TCCs prevents the stem cell based TPCs from undergoing the invasive procedure. It also prevents unpredictable complications in the TPCs caused by long-term constitutive over-expression of a GF. The adenovirally transfected TCCs exhibit a transient GF expression which results in a timely termination of GF supply to the TPCs. The TCC-sourced transgenic TGF-beta3 successfully induced chondrogenesis in the TPCs. Real-time PCR results show enhanced expression of cartilage markers and immuno/histochemical staining for Glycosaminoglycans (GAG) and Collagen II also shows abundant extracellular matrix (ECM) production and chondrogenic morphogenesis in the co-cultured TPCs. These results confirm the efficacy of directing stem cell differentiation towards chondrogenesis and cartilage tissue formation by co-culturing them with GF transfected chondrocytes.