The regenerative potential for adult bone marrow-derived mesenchymal stromal cells (MSCs) has been extensively investigated in the setting of arthritic disease and focal cartilage defects. In vitro chondrogenic differentiation of MSCs is regularly accomplished by the widely used pellet culture system where MSCs are maintained in high-density pellets to mimic mesenchymal condensation during development. Supplementation of chondrogenic MSC pellet cultures with growth differentiation factor-5 (GDF-5), a highly regulated gene in the chondrogenic phase of endochondral ossification (EO), was investigated here under the hypothesis that GDF-5 will enhance the chondrogenic differentiation of MSCs, thereby supporting their entry into ossification. The supplementation of chondrogenic MSC pellets with the recombinant human GDF-5 protein significantly enhanced MSC chondrogenic differentiation, as demonstrated by enhanced collagen type II and sulfated glycosaminoglycan (GAG) incorporation into the extracellular matrix. Increased P-SMADs 1-5-8 were observed in pellets treated with GDF-5 and transforming growth factor (TGF)-β 3 when compared to the pellets treated with TGF-β 3 alone, demonstrated by immunostaining and western blot analysis of the chondrogenic pellet extract. A concurrent increase in alkaline phosphatase, collagen types I and X, and osteopontin secretion indicated a transition of these cultures to hypertrophy. Together, these data support the application of GDF-5 to enhance MSC chondrogenic differentiation and hypertrophy as a precursor to EO.