Osteochondral defects develop into osteoarthritis without intervention. Costal cartilage can be utilized as an alternative source for repairing osteochondral defect. Our previous clinical study has shown the successful osteochondral repair by costal cartilage graft with integration into host bone bed. In this study, we investigate how cartilaginous graft adapt to osteochondral environment and the mechanism of bone-cartilage interface formation. Costal cartilage grafting was performed in C57BL/6J mice and full-thickness osteochondral defect was made as control. 3D optical profiles and micro-CT were applied to evaluate the reconstruction of articular cartilage surface and subchondral bone as well as gait analysis to evaluate articular function. Histological staining was performed at 2, 4, and 8 weeks after surgery. Moreover, costal cartilage from transgenic mice with fluorescent markers were transplanted into wild-type mice to observe the in vivo changes of costal chondrocytes. At 8 weeks after surgery, 3D optical profiles and micro-CT showed that in the graft group, the articular surface and subchondral bone were well preserved. Gait analysis and International Cartilage Repair Society (ICRS) score evaluation showed a good recovery of joint function and histological repair in the graft group. Safranin O staining showed the gradual integration of graft and host tissue. Costal cartilage from transgenic mice with fluorescent markers showed that donor-derived costal chondrocytes turned into osteocytes in the subchondral area of host femur. Costal cartilage grafting shows both functional and histological repair of osteochondral defect in mice. Graft-derived costal chondrocytes differentiate into osteocytes and contribute to endochondral ossification.