In the present study, we applied and optimized a heparin-based hydrogel system, formed by thiolated heparin and diacrylated poly (ethylene glycol), for three-dimensional chondrocyte culture. Encapsulation by the heparin-based hydrogel did not affect the chondrocyte viability (better than calcium-induced alginate gel), and the heparin-based hydrogel promoted chondrocyte proliferation, while maintaining chondrogenic nature. Phenotypic analyses, such as glycosaminoglycan accumulation and histological staining, also supported the proper role of the heparin-based hydrogel for cartilage regeneration; a continuous increase in glycosaminoglycan amount was observed during the culture period. At the transcriptional level, the gene expression of type II collagen and Sox-9 was maintained, whereas type I collagen expression was not observed. The chondrocyte expansion was affected by the gel strength, and there existed an optimum gel concentration for it. Based on the results, the heparin-based hydrogel is a promising material for chondrocyte culture, potentially applicable for cartilage regeneration.