Transforming growth factor-beta (TGF-beta) is known to be a potent inducer of stem cell chondrogenic differentiation. Transforming growth factor-beta/activin/nodal-signaling pathway has also been shown to be involved in maintaining the pluripotency of embryonic stem cells (ESCs). In this study, the effect of TGF-beta1 in chondrogenic differentiation of ESCs was examined both with undifferentiated ESCs that bypassed classical embryoid body (EB) formation, and on 5-day EB-derived cells. The effect of TGF-beta1 was compared to cells differentiated in serum-free chondrogenic basal medium without growth factor supplement. Analysis by real-time polymerase chain reaction (PCR), type II collagen enzyme-linked immunosorbent assay, sulfated glycoaminoglycan quantification and fluorescence immunostaining demonstrated substantial chondrogenic differentiation of ESCs regardless of EB formation in the absence of the growth factor. Addition of TGF-beta1 significantly inhibited chondrogenic gene expression and collagen deposition with a more potent effect on the cells that bypassed EB formation. Our study using a TGF-beta/activin/nodal-signaling inhibitor suggested that TGF-beta inhibited early chondrogenic induction but was required at the later stage of differentiation, which was also reflected in the enhancing effect of TGF-beta1 on chondrogenic development at later time points in EB-derived cells. Analysis of the pluripotency markers demonstrated sustained Oct4 and Nanog expression in the presence of TGF-beta1 with Oct4-positive cells detected in subpopulations of the differentiated culture. Our results suggest that TGF-beta1 suppresses ESC chondrogenic induction and the degree of suppression is dependent on the differentiation-stage of the ESC. Transforming growth factor-beta signaling, however, is required for functional chondrogenic development of ESC. Our finding that TGF-beta can sustain an undifferentiated population of human ESCs within the differentiation culture suggests that caution should be exercised when using this growth factor as an ESC chondrogenic inducer and highlights the importance of a selection protocol for chondroprogenitor cells to avoid possible teratoma formation in vivo.