Cartilage tissue regeneration often presents a challenging clinical situation. Recently, it has been shown that Periodontal Ligament Stem Cells (PDLSCs) possess high chondrogenic differentiation capacity. In this study, we developed a stem cell delivery system based on alginate/hyaluronic acid (HA) loaded with TGF-β1 ligand, encapsulating PDLSCs; and investigated the chondrogenic differentiation of encapsulated cells in alginate/HA hydrogel microspheres in vitro and in vivo. The results showed that PDLSCs, as well as human bone marrow mesenchymal stem cells (hBMMSCs), as the positive control, were stained positive for both toluidine blue and alcian blue staining, while exhibiting high levels of gene expression related to chondrogenesis (Col II, Aggrecan and Sox-9), as assessed via qPCR. The quantitative PCR analyses exhibited that the chondrogenic differentiation of encapsulated MSCs can be regulated by the modulus of elasticity of hydrogel delivery system, confirming the vital role of the microenvironment, and the presence of inductive signals for viability and differentiation of MSCs. In vivo, histological and immunofluorescence staining for chondrogenic specific protein markers confirmed ectopic cartilage-like tissue regeneration inside transplanted hydrogels. PDLSCs presented significantly greater capability for chondrogenic differentiation than hBMMSCs (P < 0.05). Altogether, our findings confirmed that alginate/HA hydrogels encapsulating PDLSCs are a promising candidate for cartilage regeneration.