Hyaline cartilage displays a limited regenerative potential. Consequently, therapeutic approaches have been developed to treat focal cartilage lesions. Larger-sized lesions are commonly treated by osteochondral grafting/mosaicplasty, autologous chondrocyte implantation (ACI) or matrix-induced chondrocyte implantation (MACI). As an alternative cell source to chondrocytes, multipotent mesenchymal stem cells (MSCs) are regarded a promising option. We therefore investigated the feasibility of pre-differentiating human MSCs incorporated in hydrogels clinically applied for MACI (CaReS®). MSC-laden hydrogels were cast and cultured over 10 days in a defined chondrogenic differentiation medium supplemented with TGF-β1. This was followed by an 11-day culture in TGF-β1 free media. After 21 days, considerable contraction of the hydrogels was observed. Histochemistry showed cells of a chondrocyte-like morphology embedded in a proteoglycan-rich extracellular matrix. Real-time polymerase chain reaction (RT-PCR) analysis showed the expression of chondrogenic marker genes, such as collagen type II and aggrecan. In summary, we demonstrate that chondrogenic differentiation of human mesenchymal stem cells embedded in collagen type I hydrogels can be induced under the influence of TGF-β1 over a period of 10 days.