Strategies based on growth factor (GF) delivery have attracted considerable attention in tissue engineering applications. Among different GFs, transforming growth factor beta 1 (TGF-β1) is considered to be a potent factor for inducing chondrogenesis. In the present study, an expression cassette encoding the TGF-β1 protein was prepared and transfected into the SP2/0-Ag14 cell line. The confocal microscopy of the transfected cells was performed to confirm the correct transfection process. The expression and in vitro release kinetics of the recombinant TGF-β1 were assessed by western blot analysis and ELISA, respectively. Moreover, the biological activity of the expressed protein was compared with that of a commercially available product. The chondrogenic effects of the sustained release of the recombinant TGF-β1 in an in vitro co-culture system were evaluated using a migration assay and real-time PCR. Results of confocal microscopy confirmed the successful transfection of the vector-encoding TGF-β1 protein into the SP2/0-Ag14 cells. The bioactivity of the produced protein was in the range of the commercial product. The sustained release of the TGF-β1 protein via SP2/0-Ag14 cells encapsulated in hydrogels encouraged the migration of adipose-derived MSCs. In addition, the expression analysis of chondrogenesis-related genes revealed that the pretreatment of encapsulated Ad-MSCs cells in alginate sulfate hydrogels through their exposure to the sustained release of TGF-β1 is an efficient approach before transplantation of cells into the body.