Articular cartilage has a very limited intrinsic repair capacity leading to progressive joint damage. Therapies involving tissue engineering depend on chondrogenic differentiation of progenitor cells. This chondrogenic differentiation will have to survive in a diseased joint. We postulate that catabolic factors in this environment inhibit chondrogenesis of progenitor cells. We investigated the effect of a catabolic environment on chondrogenesis in pellet cultures of human mesenchymal stem cells (hMSCs). We exposed chondrogenically differentiated hMSC pellets, to interleukin (IL)-1α, tumor necrosis factor (TNF)-α or conditioned medium derived from osteoarthritic synovium (CM-OAS). IL-1α and TNF-α in CM-OAS were blocked with IL-1Ra or Enbrel, respectively. Chondrogenesis was determined by chondrogenic markers collagen type II, aggrecan, and the hypertrophy marker collagen type X on mRNA. Proteoglycan deposition was analyzed by safranin o staining on histology. IL-1α and TNF-α dose-dependently inhibited chondrogenesis when added at onset or during progression of differentiation, IL-1α being more potent than TNF-α. CM-OAS inhibited chondrogenesis on mRNA and protein level but varied in extent between patients. Inhibition of IL-1α partially overcame the inhibitory effect of the CM-OAS on chondrogenesis whereas the TNF-α contribution was negligible. We show that hMSC chondrogenesis is blocked by either IL-1α or TNF-α alone, but that there are additional factors present in CM-OAS that contribute to inhibition of chondrogenesis, demonstrating that catabolic factors present in OA joints inhibit chondrogenesis, thereby impairing successful tissue engineering.