Recently, cartilage diseases have been treated by auto- or allogenic chondrocyte transplantation. However, such treatments are limited by the necessity of having a large amount of cells for transplantation, the risk of rejection, and donor shortage. Since the human amnion is immune-privileged tissue suitable for allotransplantation, the potential of human amniotic mesenchymal cells (HAMc) to differentiate into chondrocytes was assessed. The expression of gene encoding transcription factors SOXs and bone morphogenetic proteins (BMPs) as well as BMP receptors were assessed. Chondrocyte phenotype was characterized by positive expression of the cartilage marker genes collagen type II and aggrecan by RT-PCR, collagen type II protein were analyzed by immunofluorescence analysis. HAMc expressed chondrocyte-related genes, including SOXs, BMPs, as well as BMP receptors. Collagen type II and aggrecan were detected after the induction of chondrogenesis with BMP-2. HAMc, transplanted into noncartilage tissue of mice with BMP-2, or implanted with collagen-scaffold into the defects generated in a rat's bone, underwent morphological changes with deposition of collagen type II. These results showed that HAMc have the potential to differentiate into chondrocytes in vitro and in vivo, suggesting that they have therapeutic potential for the treatment of damaged or diseased cartilage.