The repair of articular cartilage injuries is impeded by the avascular and non-innervated nature of cartilage. Transplantation of autologous chondrocytes has a limited ability to augment the repair process due to the highly differentiated state of chondrocytes and the risks of donor-site morbidity. Mesenchymal stem cells can undergo chondrogenesis in the presence of growth factors for cartilage defect repair. Growth and differentiation factor-5 (GDF5) plays an important role in chondrogenesis. In this study, we examined the effects of GDF5 on chondrogenesis of adipose-derived stem cells (ADSCs) and evaluate the chondrogenic potentials of GDF5 genetically engineered ADSCs using an in vitro pellet culture model. Rat ADSCs were grown as pellet cultures and treated with chondrogenic media (CM). Induction of GDF5 by an adenovirus (Ad-GDF5) was compared with exogenous supplementation of GDF5 (100 ng/ml) and transforming growth factor-beta (TGF-beta1; 10 ng/ml). The ADSCs underwent chondrogenic differentiation in response to GDF5 exposure as demonstrated by production of proteoglycan, and up-regulation of collagen II and aggrecan at the protein and mRNA level. The chondrogenic potential of a one-time infection with Ad-GDF5 was weaker than exogenous GDF5, but equal to that of TGF-beta1. Stimulation with growth factors or CM alone induced transient expression of the mRNA for collagen X, indicating a need for optimization of the CM. Our findings indicate that GDF5 is a potent inducer of chondrogenesis in ADSCs, and that ADSCs genetically engineered to express prochondrogenic growth factors, such as GDF5, may be a promising therapeutic cell source for cartilage tissue engineering.