Chondrogenic differentiating mesenchymal stem cells (MSCs) express markers of hypertrophic growth plate chondrocytes. As hypertrophic cartilage undergoes ossification, this is a concern for the application of MSCs in articular cartilage tissue engineering. To identify mechanisms that elicit this phenomenon, we used an in vitro hypertrophy model of chondrifying MSCs for differential gene expression analysis and functional experiments with the focus on bone morphogenetic protein (BMP) signaling. Hypertrophy was induced in chondrogenic MSC pellet cultures by transforming growth factor β (TGFβ) and dexamethasone withdrawal and addition of triiodothyronine. Differential gene expression analysis of BMPs and their receptors was performed. Based on these results, the in vitro hypertrophy model was used to investigate the effect of recombinant BMP4 and the BMP inhibitor Noggin. The enhancement of hypertrophy could be shown clearly by an increased cell size, alkaline phosphatase activity, and collagen type X deposition. Upon induction of hypertrophy, BMP4 and the BMP receptor 1B were upregulated. Addition of BMP4 further enhanced hypertrophy in the absence, but not in the presence of TGFβ and dexamethasone. Thyroid hormone induced hypertrophy by upregulation of BMP4 and this induced enhancement of hypertrophy could be blocked by the BMP antagonist Noggin. BMP signaling is an important modulator of the late differentiation stages in MSC chondrogenesis and the thyroid hormone induces this pathway. As cartilage tissue engineering constructs will be exposed to this factor in vivo, this study provides important insight into the biology of MSC-based cartilage. Furthermore, the possibility to engineer hypertrophic cartilage may be helpful for critical bone defect repair.