In the adult human, mesenchymal stem cells (hMSCs) resident in the bone marrow retain the capacity to proliferate and differentiate along multiple connective tissue lineages, including cartilage. Glucocorticoids (GCs) are required for chondrogenic differentiation of hMSCs in vitro; however, the exact role of GCs in this process is not known. In this study, we examined the effects of dexamethasone (DEX) on chondrogenic differentiation of hMSCs in the presence or absence of DEX, transforming growth factor-beta (TGF-beta), or DEX plus TGF-beta. GC treatment upregulated gene expression of cartilage matrix components aggrecan, dermatopontin, and collagen type XI; enhanced TGF-beta-mediated upregulation of collagen type II and cartilage oligomeric matrix protein; and increased aggrecan and collagen type II production as well as cartilage matrix-sulfated proteoglycans as assessed by immunohistochemistry and alcian blue staining. Inclusion of an antagonist of GCs inhibited expression of chondrogenic differentiation markers, suggesting that the GC effects during chondrogenesis are mediated by the GC receptor (GR). Steady levels of the major active form of GR, GRalpha, were detected in both undifferentiated and differentiating hMSCs, whereas the dominant-negative isoform GRbeta, present at low levels in undifferentiated hMSCs, was downregulated during chondrogenesis. In the presence of DEX and TGF-beta, expression of a collagen type II gene promoter luciferase reporter construct in hMSCs was upregulated. However, coexpression of GRbeta dramatically inhibited promoter activity, suggesting that GRalpha is required for GC-mediated modulation of chondrogenesis and that GCs may play an important role in the maintenance of cartilage homeostasis.