Chondrogenesis of mesenchymal stem cells (MSCs) is typically induced when they are condensed into a single aggregate and exposed to transforming growth factor-beta (TGF-beta). Hypoxia, like aggregation and TGF-beta delivery, may be crucial for complete chondrogenesis. However, the pellet dimensions and associated self-induced oxygen gradients of current chondrogenic methods may limit the effectiveness of in vitro differentiation and subsequent therapeutic uses. Here we describe the use of embryoid body-forming technology to produce microscopic aggregates of human bone marrow MSCs (BM-MSCs) for chondrogenesis. The use of micropellets reduces the formation of gradients within the aggregates, resulting in a more homogeneous and controlled microenvironment. These micropellet cultures (approximately 170 cells/micropellet) as well as conventional pellet cultures (approximately 2 x 10(5) cells/pellet) were chondrogenically induced under 20% and 2% oxygen environments for 14 days. Compared to conventional pellets under both environments, micropellets differentiated under 2% O(2) showed significantly increased sulfated glycosaminoglycan (sGAG) production and more homogeneous distribution of proteoglycans and collagen II. Aggrecan and collagen II gene expressions were increased in pellet cultures differentiated under 2% O(2) relative to 20% O(2) pellets but 2% O(2) micropellets showed even greater increases in these genes, as well as increased SOX9. These results suggest a more advanced stage of chondrogenesis in the micropellets accompanied by more homogeneous differentiation. Thus, we present a new method for enhancing MSC chondrogenesis that reveals a unique relationship between oxygen tension and aggregate size. The inherent advantages of chondrogenic micropellets over a single macroscopic aggregate should allow for easy integration with a variety of cartilage engineering strategies.