The adult bone marrow stroma contains a subset of nonhematopoietic cells referred to as mesenchymal stem or mesenchymal progenitor cells (MSC). These cells have the capacity to undergo extensive replication in an undifferentiated state ex vivo. In addition, MSC have the potential to develop either in vitro or in vivo into distinct mesenchymal tissues, including bone, cartilage, fat, tendon, muscle, and marrow stroma, which suggest these cells as an attractive cell source for tissue engineering approaches. The interest in modern biological technologies such as tissue engineering has dramatically increased since it is feasible to isolate living, healthy cells from the body, expand them under cell culture conditions, combine them with biocompatible carrier materials and retransplant them into patients. Therefore, tissue engineering gives the opportunity to generate living substitutes for tissues and organs, which may overcome the drawbacks of classical tissue reconstruction: lacking quality and quantity of autologous grafts, immunogenicity of allogenic grafts and loosening of alloplastic implants. Due to the prerequisite for tissue engineering to ensure a sufficient number of tissue specific cells without donor site morbidity, much attention has been drawn to multipotential progenitor cells such as embryonic stem cells, periosteal cells and mesenchymal stem cells. In this report we review the state of the art in tissue engineering with mesenchymal stem and mesenchymal progenitor cells with emphasis on bone and cartilage reconstruction. Furthermore, several issues of importance, especially with regard to the clinical application of mesenchymal stem cells, are discussed.