Cross-linked polymer blends from natural compounds, namely gelatin (Gel), chitosan (CS), and synthetic poly (vinyl alcohol) (PVA), have received increasing scrutiny because of their versatility, biocompatibility, and ease of use for tissue engineering. Previously, Gel/CS/PVA [1:1:1] hydrogel produced via the freeze-drying process presented enhanced mechanical properties. This study aimed to investigate the biocompatibility and chondrogenic potential of a steam-sterilized Gel/CS/PVA hydrogel using differentiation of human adipose-derived mesenchymal stromal cells (AD-hMSC) and cartilage marker expression. AD-hMSC displayed fibroblast-like morphology, 90% viability, and 69% proliferative potential. Mesenchymal profiles CD73 (98.3%), CD90 (98.6%), CD105 (97.0%), CD34 (1.11%), CD45 (0.27%), HLA-DR (0.24%); as well as multilineage potential, were confirmed. Chondrogenic differentiation of AD-hMSC in monolayer revealed the formation of cartilaginous nodules composed of glycosaminoglycans after 21 days. Compared to nonstimulated cells, hMSC-derived chondrocytes shifted the expression of CD49a from 2.82% to 40.6%, CD49e from 51.4% to 92.2%, CD54 from 9.66 to 37.2%, and CD151 from 45.1% to 75.8%. When cultured onto Gel/CS/PVA hydrogel during chondrogenic stimulation, AD-hMSC changed to polygonal morphology, and chondrogenic nodules increased by day 15, six days earlier than monolayer-differentiated cells. SEM analysis showed that hMSC-derived chondrocytes adhered to the surface with extended filopodia and abundant ECM formation. Chondrogenic nodules were positive for aggrecan and type II collagen, two of the most abundant components in cartilage. This study supports the biocompatibility of AD-hMSC onto steam-sterilized GE/CS/PVA hydrogels and its improved potential for chondrocyte differentiation. Hydrogel properties were not altered after steam sterilization, which is relevant for biosafety and biomedical purposes.