Cartilage loss is a leading cause of disability among adults and effective therapy remains elusive. Neonatal chondrocytes (NChons) are an attractive allogeneic cell source for cartilage repair, but their clinical translation has been hindered by scarce donor availability. Here we examine the potential for catalyzing cartilage tissue formation using a minimal number of NChons by co-culturing them with adipose-derived stem cells (ADSCs) in 3D hydrogels. Using three different co-culture models, we demonstrated that the effects of co-culture on cartilage tissue formation are dependent on the intercellular distance and cell distribution in 3D. Unexpectedly, increasing ADSC ratio in mixed co-culture led to increased synergy between NChons and ADSCs, and resulted in the formation of large neocartilage nodules. This work raises the potential of utilizing stem cells to catalyze tissue formation by neonatal chondrocytes via paracrine signaling, and highlights the importance of controlling cell distribution in 3D matrices to achieve optimal synergy.