Biologic drug therapies are increasingly used for inflammatory diseases such as rheumatoid arthritis but may cause significant adverse effects when delivered continuously at high doses. We used CRISPR-Cas9 genome editing of iPSCs to create a synthetic gene circuit that senses changing levels of endogenous inflammatory cytokines to trigger a proportional therapeutic response. Cells were engineered into cartilaginous constructs that showed rapid activation and recovery in response to inflammation in vitro or in vivo. In the murine K/BxN model of inflammatory arthritis, bioengineered implants significantly mitigated disease severity as measured by joint pain, structural damage, and systemic and local inflammation. Therapeutic implants completely prevented increased pain sensitivity and bone erosions, a feat not achievable by current clinically available disease-modifying drugs. Combination tissue engineering and synthetic biology promises a range of potential applications for treating chronic diseases via custom-designed cells that express therapeutic transgenes in response to dynamically changing biological signals.