In vitro degradation and chondrocyte-encapsulation of chitosan hydrogel made of crosslinkable and water-soluble chitosan derivative (CML) at neutral pH and body temperature were studied with respect to weight loss, cytoviability, DNA content and cell morphology. In vitro degradation of the chitosan hydrogels was sensitive to their crosslinking degree and existence of lysozyme in the solution. Chitosan hydrogel (Gel-I5) fabricated from 1% CML and 5mM ammonium persulfate (APS)/N,N,N',N'-tetramethylethylenediamine (TMEDA) displayed no degradation in phosphate buffered saline (PBS) after 18d, but degraded completely at 8d in 1mg/ml lysozyme/PBS. The chitosan hydrogel fabricated from 10mM APS/TMEDA was non-degradable even in lysozyme/PBS solution after 18d. The hydrogel loaded with chondrocytes in cell culture medium, however, was susceptible to degradation during the in vitro culture. In vitro culture of the encapsulated chondrocytes in the chitosan hydrogel demonstrated that the cells retained round shaped morphology and could survive through a 12d-culture period, although the DNA assay detected an overall reduction of the cell number. These features provide a great opportunity to use the chitosan hydrogel as an injectable scaffold in tissue engineering and orthopaedics.