Bone marrow mesenchymal stem cells (MSCs) are candidate cells for cartilage tissue engineering. This is due to their ability to undergo chondrogenic differentiation after extensive expansion in vitro and stimulation with various biomaterials in three-dimensional (3-D) systems. Collagen type II is one of the major components of the hyaline cartilage and plays a key role in maintaining chondrocyte function. This study aimed at analyzing the MSC chondrogenic response during culture in different types of extracellular matrix (ECM) with a focus on the influence of collagen type II on MSC chondrogenesis. Bovine MSCs were cultured in monolayer as well as in alginate and collagen type I and II hydrogels, in both serum free medium and medium supplemented with transforming growth factor (TGF) beta1. Chondrogenic differentiation was detected after 3 days of culture in 3-D hydrogels, by examining the presence of glycosaminoglycan and newly synthesized collagen type II in the ECM. Differentiation was most prominent in cells cultured in collagen type II hydrogel, and it increased in a time-dependent manner. The expression levels of the of chondrocyte specific genes: sox9, collagen type II, aggrecan, and COMP were measured by quantitative "Real Time" RT-PCR, and genes distribution in the hydrogel beads were localized by in situ hybridization. All genes were upregulated by the presence of collagen, particularly type II, in the ECM. Additionally, the chondrogenic influence of TGF beta1 on MSCs cultured in collagen-incorporated ECM was analyzed. TGF beta1 and dexamethasone treatment in the presence of collagen type II provided more favorable conditions for expression of the chondrogenic phenotype. In this study, we demonstrated that collagen type II alone has the potential to induce and maintain MSC chondrogenesis, and prior interaction with TGF beta1 to enhance the differentiation.