Crosslinked hydrogels provide an accommodating environment for cartilage regeneration. However, degradation of the crosslinked network is necessary to create gels with an initially desirable mechanical stiffness and long-term distribution of properly assembled matrix molecules. In this study, chondrocytes were encapsulated in crosslinked poly(ethylene glycol) (PEG) hydrogels with caprolactone blocks that enabled an exogenously controlled, enzymatic degradation mechanism. At different stages of in vitro culture, a lipase enzyme was added to culture media to trigger degradation of the gel network. In gel constructs that never received lipase, the large cartilage matrix molecule, type II collagen, was localized to the pericellular region. Constructs that received lipase in the media for at least 1 week degraded enough to allow some distribution of collagen, but the timing and duration of lipase administration affected the outcome of regenerated tissue after 8 weeks of in vitro culture. Degradation that was triggered too early resulted in more significant defects in the cartilaginous matrix. The hydrogels applied in this study allow explicit control over degradation, and therefore provide a useful tool for investigating the effects of specific mass loss profiles on the evolution of neocartilage in vitro.