This study was conducted to reveal the chondrogenesis of mesenchymal stem cells that had been genetically modified with the green fluorescence protein (GFP) gene and then co-cultured with chondrocytes in vitro and in vivo. Subsequent mixing of chondrocytes in the hydrogel constructs induced increased chondrogenic differentiation of the transfected hMSCs. The proliferation and differentiation of MSCs that were transfected with the GFP gene and co-cultured with chondrocytes (1:1 and 1:3) or chondrocytes alone were evaluated by a live/dead assay, MTT assay, GAG & DNA assay, RT-PCR, real time-PCR, and histological and immunochemical analysis in vitro and in vivo. Real-time PCR revealed that the expression of aggrecan and COMP by genetically modified hMSCs co-cultured with chondrocytes was 2 or 3 times greater than that of genetically modified MSCs alone. Moreover, the expression of collagen type II was more than 3.5 times greater than that of genetically modified MSCs alone. 3-D hydrogel constructs co-cultured with chondrocytes and genetically modified MSCs showed a significantly higher number of specific lacunae phenotypes at the end of the 4 week study, regardless of whether they were co-cultured in the presence of chondrocytes. These findings indicate that co-culture with chondrocytes and genetically modified MSCs can be used to engineer well designed implants for the formation of neocartilage by transplanted genetically modified MSCs.