Human induced pluripotent stem cells (hiPSCs) have demonstrated great potential for hyaline cartilage regeneration. However, current approaches for chondrogenic differentiation of hiPSCs are complicated and inefficient primarily due to intermediate embryoid body formation, which is required to generate endodermal, ectodermal, and mesodermal cell lineages. We report a new, straightforward and highly efficient approach for chondrogenic differentiation of hiPSCs, which avoids embryoid body formation. We differentiated hiPSCs directly into mesenchymal stem /stromal cells (MSC) and chondrocytes. hiPSC-MSC-derived chondrocytes showed significantly increased Col2A1, GAG, and SOX9 gene expression compared to hiPSC-MSCs. Following transplantation of hiPSC-MSC and hiPSC-MSC-derived chondrocytes into osteochondral defects of arthritic joints of athymic rats, magnetic resonance imaging studies showed gradual engraftment, and histological correlations demonstrated hyaline cartilage matrix production. Results present an efficient and clinically translatable approach for cartilage tissue regeneration via patient-derived hiPSCs, which could improve cartilage regeneration outcomes in arthritic joints.