This article addresses the stability of chondrogenic phenotype and the transdifferentiation potential of bone marrow-derived mesenchymal stem cells (MSCs) at distinct stages of differentiation. Differentiated MSCs were expected to maintain cartilage-like gene expression pattern in the absence of any chondrogenic growth factor or in the presence of osteogenic signals. MSCs encapsulated in alginate beads were treated with transforming growth factor (TGF)-beta 3 for 3, 6, or 14 days and then cultured in absence of TGF-beta for the remainder of the 2-week culture period. Additionally, cells were cultured in osteogenic medium after TGF-beta-mediated chondroinduction. Gene expression of col2a1, aggrecan, COMP, alkaline phosphatase (AP), and correlating protein synthesis was analyzed. After short-term stimulation with TGF-beta, MSCs maintained a chondrogenic phenotype. Chondrogenic gene expression and protein synthesis directly correlated with the extent of stimulation time and the concentration of TGF-beta. Pretreatment with TGF-beta could prevent AP mRNA expression of encapsulated MSCs. TGF- beta stimulation within the first 3 days of culture seems to be crucial for the expression of a chondrogenic phenotype. Fully differentiated and encapsulated MSCs are not able to transdifferentiate into osteoblasts. These findings give rise to a better understanding of the behavior of cartilage grafts affected by local factors of osteochondral transplantation sites in vivo.