Human embryonic stem (hES) cells have been suggested as a cell source for the repair of cartilage lesions. Here we studied how coculture with human articular chondrocytes affects the expansion potential, morphology, expression of surface markers, and differentiation abilities of hES cells, with special regard to chondrogenic differentiation. Undifferentiated hES cells were cocultured with irradiated neonatal or adult articular chondrocytes in high-density pellet mass cultures for 14 days. Cocultured hES cells were then expanded on plastic and their differentiation potential toward the adipogenic, osteogenic, and chondrogenic lineages was compared with that of undifferentiated hES cells. The expression of different surface markers was investigated using flow cytometry and teratoma formation was studied using injection of the cells under the kidney capsule. Our results demonstrate that although hES cells have to be grown on Matrigel, the cocultured hES cells could be massively expanded on plastic with a morphology and expression of surface markers similar to mesenchymal stem cells. Coculture further resulted in a more homogenous pellet and significantly increased cartilage matrix production, both in high-density pellet mass cultures and hyaluronan-based scaffolds. Moreover, cocultured cells formed colonies in agarose suspension culture, also demonstrating differentiation toward chondroprogenitor cells, whereas no colonies were detected in the hES cell cultures. Coculture further resulted in a significantly decreased osteogenic potential. No teratoma formation was detected. Our results confirm the potential of the culture microenvironment to influence hES cell morphology, expansion potential, and differentiation abilities over several population doublings.