Collagen degradation is one of the early signs of osteoarthritis. It is not known how collagen degradation affects chondrocyte volume and morphology. Thus, the aim of this study was to investigate the effect of enzymatically induced collagen degradation on cell volume and shape changes in articular cartilage after a hypotonic challenge. Confocal laser scanning microscopy was used for imaging superficial zone chondrocytes in intact and degraded cartilage exposed to a hypotonic challenge. Fourier transform infrared microspectroscopy, polarized light microscopy, and mechanical testing were used to quantify differences in proteoglycan and collagen content, collagen orientation, and biomechanical properties, respectively, between the intact and degraded cartilage. Collagen content decreased and collagen orientation angle increased significantly (p < 0.05) in the superficial zone cartilage after collagenase treatment, and the instantaneous modulus of the samples was reduced significantly (p < 0.05). Normalized cell volume and height 20 min after the osmotic challenge (with respect to the original volume and height) were significantly (p < 0.001 and p < 0.01, respectively) larger in the intact compared to the degraded cartilage. These findings suggest that the mechanical environment of chondrocytes, specifically collagen content and orientation, affects cell volume and shape changes in the superficial zone articular cartilage when exposed to osmotic loading. This emphasizes the role of collagen in modulating cartilage mechanobiology in diseased tissue.