Collagen-based (COL) hydrogels could be a promising treatment option for injuries to the articular cartilage (AC) becuase of their similarity to AC native extra extracellular matrix. However, the high hydration of COL hydrogels poses challenges for AC's mechanical properties. To address this, we developed a hydrogel platform that incorporating cellulose nanocrystals (CNCs) within COL and followed by plastic compression (PC) procedure to expel the excessive fluid out. This approach significantly improved the mechanical properties of the hydrogels and enhanced the chondrogenic differentiation of mesenchymal stem cells (MSCs). Radially confined PC resulted in higher collagen fibrillar densities together with reducing fibril-fibril distances. Compressed hydrogels containing CNCs exhibited the highest compressive modulus and toughness. MSCs encapsulated in these hydrogels were initially affected by PC, but their viability improved after 7 days. Furthermore, the morphology of the cells and their secretion of glycosaminoglycans (GAGs) were positively influenced by the compressed COL-CNC hydrogel. Our findings shed light on the combined effects of PC and CNCs in improving the physical and mechanical properties of COL and their role in promoting chondrogenesis.