Objectives:To determine whether rabbit bone marrow-derived MSCs embedded in a chondroitin sulfate (ChS)/ poly (ethylene glycol) (PEG) biodegradable hydrogel display enhanced in vivo chondrogenesis as compared to ChS/PEG hydrogel alone, in a critical sized osteochondral defect in a rabbit animal model.Methods:Allogenic MSCs were harvested from bone marrow and expanded in specific media (20% fetal bovine serum, 50 U ml-1 penicillin, 50 mg ml-1 streptomycin, 20 mg ml-1 gentamicin, and 5 ng ml-1 bFGF (fibroblast growth factor) in low glucose Dulbecco’s modified Eagle media) under standard cell culture conditions (37o C with 5% CO2). Surgery was carried out in 10 mature New Zealand white rabbits (8 months old). A critical sized chondral defect (3mm) was performed bilaterally in the trochlear groove of the femoropatellar joint in all ten rabbits. Three treatment groups were established as follows: 1- hydrogel alone (5N), 2- hydrogel with MSCs (3 x 106 cell/ml) (5N), and 3- control defect with no treatment (10N). Animals were left to ambulate freely after surgery. At 6 months postoperative, euthanasia was performed. Macroscopic evaluation of defect repair was performed by four observers unaware of treatment groups using ICRS (International Cartilage Repair Society) scoring. Microscopic evaluation was performed using the O’Driscoll grading system. Using SigmaPlot 11.0 statistical software (Systat Software, San Jose, CA, USA), comparison between groups was performed with an ANOVA test to see if differences existed between treatment groups. Tukey’s correction was used to adjust for multiple group comparisons, and two independent t-tests: 1- between rabbits receiving hydrogel alone vs. their respective controls; 2- between rabbits receiving hydrogel / MSCs vs. their respective controls; for both ICRS and O’Driscoll scores, being a total of six statistical analyses.Results:At time of euthanasia, all hydrogels remained in place. There was no synovial reaction or macroscopic inflammation. Cartilage repair was evident in all groups. Macroscopically, no significant difference was evident according to ICRS scores. The average ICRS score for the groups was: 1 (hydrogel alone): 10 ± 1.73 SD, 2 (hydrogel with MSCs): 10 ± 1.41 SD and 3(control): 11.3 ± 1.06 SD (p= 0.088). Histological average scoring with O’Driscoll system for each group was highest for the hydrogel alone (1: 19.8 ± 5.5 SD, 2: 16 ± 3.54 SD, and 3: 18.5 ± 3.63 SD) (p= 0.227) (Figure 1). One way ANOVA, showed no statistical difference for both ICRS and O’Driscoll scores. The t-tests showed no statistical significance among groups (p>.05), except for ICRS score comparing control vs. hydrogel / MSCs which favored the control group (p=0.046).Conclusion:Hydrogels remained in place and induced chondrogenesis, especially when hydrogels were placed in the defect without MSCs. Adding MSCs to the hydrogel did not improve cartilage healing. Macroscopically, ICRS score was significantly worse for the MSCs/hydrogel group when compared to the control group. Limitations of this study include small animal model with natural good intrinsic cartilage regeneration. Still, all selected animals were mature, reducing the chances of natural healing. In addition, all animals had an established control defect. Future experiments will include adding transforming growth factor (TFGb) to the encapsulated MSCs to potentially improve chondrogenesis.