Abstract The purpose of this study was to investigate the chondrogenic features of human induced pluripotent stem cells (hiPSCs) and examine the differences in the chondrogenesis between hiPSCs and human bone marrow-derived MSCs (hBMMSCs). Embryoid bodies (EBs) were formed from undifferentiated hiPSCs. After EBs were dissociated into single cells, chondrogenic culture was performed in pellets and alginate hydrogel. Chondro-induced hiPSCs were implanted in osteochondral defects created on the patellar groove of immunosuppressed rats and evaluated after 12 weeks. The ESC markers NANOG, SSEA4 and OCT3/4 disappeared while the mesodermal marker BMP-4 appeared in chondro-induced hiPSCs. After 21 days of culture, greater glycosaminoglycan contents and better chondrocytic features including lacuna and abundant matrix formation were observed from chondro-induced hiPSCs compared to chondro-induced hBMMSCs. The expression of chondrogenic markers including SOX-9, type II collagen, and aggrecan in chondro-induced hiPSCs was comparable to or greater than chondro-induced hBMMSCs. A remarkably low level of hypertrophic and osteogenic markers including type X collagen, type I collagen and Runx-2 was noted in chondro-induced hiPSCs compared to chondro-induced hBMMSCs. hiPSCs had significantly greater methylation of several CpG sites in COL10A1 promoter than hBMMSCs in either undifferentiated or chondro-induced state, suggesting an epigenetic cause of the difference in hypertrophy. The defects implanted with chondro-induced hiPSCs showed a significantly better quality of cartilage repair than the control defects, and the majority of cells in the regenerated cartilage consisted of implanted hiPSCs.