The objectives of this study were (1) to develop a three-dimensional chitosan scaffold in combination with transforming growth factor-beta1 (TGF-beta1)-loaded chitosan microspheres and (2) to evaluate the effect of the TGF-beta1 release on the chondrogenic potential of rabbit chondrocytes in the scaffolds. TGF-beta1 was loaded into chitosan microspheres using an emulsion-crosslinking method, resulting in spherical shapes with a size ranging from 0.3 to 1.5 microm. Controlled release of TGF-beta1, as measured by enzyme-linked immunosorbent assay (ELISA), was observed with chitosan microspheres over 7 days. Chitosan solutions (2% and 3%) were fabricated into two types of scaffolds with different pore morphologies and mechanical properties using a freeze-drying technique, with the result that scaffold with higher concentrations showed smaller pores and lower porosity, leading to a much stronger scaffold. The TGF-beta1 microspheres were incorporated into the scaffolds at a concentration of 10 ng TGF-beta1/scaffold and then chondrocytes seeded into each scaffold and incubated in vitro for 2 weeks. The 2% chitosan scaffolds showed higher cell attachment levels than the 3% chitosan scaffolds (P < 0.01), regardless of the TGF-beta1 microspheres. Both the proliferation rate and glycosaminoglycan (GAG) production were significantly higher for scaffolds incorporating TGF-beta1 microspheres than for the control scaffolds without microspheres 10 days after incubation. Extracellular matrix staining by Safranin O and immunohistochemistry for type II collagen both significantly increased in scaffolds containing TGF-beta1 microspheres. These results suggest that the TGF-beta1 microsphere incorporated in scaffolds have the potential to enhance cartilage formation.