The aim of this study was to investigate the potential of a composite matrix, containing esterified hyaluronic acid and gelatin, to facilitate the osteochondral differentiation of culture-expanded, bone marrow-derived mesenchymal progenitor cells. The cell loading characteristics and the effects of the matrix on cell differentiation were examined in vitro and in vivo. Empty and cell-loaded composites were cultivated for up to 28 days in a chemically defined medium with or without transforming growth factor-beta1 (TGF-beta1). A type II collagen-rich extracellular matrix was produced by cells loaded in the matrix and cultured in the presence of TGF-beta1. Empty and cell-loaded matrices were also implanted subcutaneously in immunodeficient mice. Three types of implant were used: empty (group I), cell-loaded matrices (Group II), and cell-loaded matrices cultured for 14 days in vitro in defined medium with TGF-beta1 (group III). No osteochondral differentiation was found in implanted empty matrices; however, the matrix supported osteochondrogenic cell differentiation in the cell-loaded implants. Preculture in vitro in a chondrogenic medium increased the percentage of osteochondral tissue found in the constructs after 3 weeks. These results indicate the potential use of this composite matrix for delivery of bone marrow-derived mesenchymal progenitor cells for the repair of chondral and osseous defects. The results also indicate that this composite matrix is useful for in vitro tissue engineering.