Autologous chondrocyte implantation (ACI) depends on the quality and quantity of implanted cells and is hindered by the fact that chondrocytes cultured for long periods of time undergo dedifferentiation. Here we have developed a reproducible and efficient chondrogenic protocol to redifferentiate chondrocytes isolated from osteoarthritis (OA) patients. We used morphological, histological and immunological analysis together with a RT-PCR detection of collagen I and collagen II gene expression to show that chondrocytes isolated from articular cartilage biopsies of patients and subjected to long-term culture undergo dedifferentiation and that these cells can be redifferentiated following treatment with the chimeric Activin A/BMP2 ligand AB235. Examination of AB235-treated cell pellets in both in vitro and in vivo experiments revealed that redifferentiated chondrocytes synthesized a cartilage-specific extracellular matrix (ECM), primarily consisting of vertically-orientated collagen fibres and cartilage-specific proteoglycans. AB235-treated cell pellets also integrated into the surrounding subcutaneous tissue following transplantation in mice as demonstrated by their dramatic increase in size while non-treated control pellets disintegrated upon transplantation. Thus, our findings describe an effective protocol for the promotion of redifferentiation of autologous chondrocytes obtained from OA patients and the formation of a cartilage-like ECM that can integrate into the surrounding tissue in vivo.