Objectives: Successful tissue regeneration requires a clinically viable source of mesenchymal stem cells (MSCs). We explored activin receptor-like kinase (ALK)-5 inhibitors to rapidly derive an MSC-like phenotype with high cartilage forming capacity from a xeno-free human embryonic cell line. Methods: Embryonic stem cell (ESC) lines (H9 and HADC100) were treated with the ALK-5 inhibitor SB431542; HADC100 cells were additionally treated with ALK-5 inhibitors SB525334 or GW788388. Cells were then seeded upon human fibronectin in the presence of fibroblast growth factor 2 (FGF2) in a serum-free medium. Flow cytometry was used to assess MSC markers (positive for CD73, CD90, and CD105; negative for CD34 and CD45). Differentiation status was assessed through quantitative polymerase chain reaction. Cartilage forming capacity was determined in high-density pellet cultures, in fibrin gels containing extracellular matrix (fibrin-ECM), and after implantation in ex vivo human osteoarthritic cartilage. Gene expression, histology, and immunostaining were used to assess cartilage phenotype, tissue regeneration, and integration. Results: Exposure to all three ALK-5 inhibitors lead to expression of mesodermal gene markers and differentiation into MSC-like cells (embryonic stem cell-derived mesenchymal stem cells [ES-MSCs]) based on surface marker expression. ES-MSC in pellet cultures or in fibrin-ECM gels expressed high levels of chondrogenic genes: COL2A1, ACAN, and COMP; and low levels of COL1A1 and RUNX2. Cell pellets or fibrin constructs implanted into ex vivo human osteoarthritic cartilage defects produced GAG-rich (safranin O positive) and collagen type II-positive neocartilage tissues that integrated well with native diseased tissue. Conclusions: We developed a protocol for rapid differentiation of xeno-free ESC into MSC-like cells with high cartilage forming capacity with potential for clinical applications. Impact statement Osteoarthritis (OA) is a common disease resulting in significant disability and no approved disease modifying treatment (other than total joint replacement). Embryonic stem cell-derived cell therapy has the potential to benefit patients with cartilage lesions leading to OA and may prevent or delay the need for total joint replacement.