Human infrapatellar fat pad contains a source of mesenchymal stem cells (FPSCs) that potentially offer a novel population for the treatment of damaged or diseased articular cartilage. Existing cartilage repair strategies such as microfracture harness the presence of a low-oxygen microenvironment, fibrin clot formation at sites of microfracture, and elevations in growth factors in the damaged joint milieu. Bearing this in mind, the objective of this study was to determine the chondrogenic potential of diseased human FPSCs in a model system that recapitulates some of these features. In the first phase of the study, the role of transforming growth factor beta-3 (TGF-β3) and fibroblast growth factor-2 (FGF-2), in addition to an altered oxygen-tension environment, on the colony-forming unit-fibroblast (CFU-F) capacity and growth kinetics of human FPSCs during monolayer expansion was evaluated. The subsequent chondrogenic capacity of these cells was quantified in both normoxic (20%) and low- (5%) oxygen conditions. Expansion in FGF-2 was shown to reduce CFU-F numbers, but simultaneously increase both the colony size and the cell yield compared to standard expansion conditions. Supplementation with both FGF-2 and TGF-β3 significantly reduced cell-doubling time. Expansion in FGF-2, followed by differentiation at 5% oxygen tension, was observed to synergistically enhance subsequent sulfated glycosaminoglycan (sGAG) accumulation after chondrogenic induction. FPSCs expanded in FGF-2 were then encapsulated in either agarose or fibrin hydrogels in an attempt to engineer cartilaginous grafts. sGAG synthesis was higher in fibrin constructs, and was further enhanced by differentiation at 5% oxygen tension, accumulating 2.7% (ww) sGAG after 42 days in culture. These results indicate that FPSCs, a readily accessible cell population, form cartilage in an in vitro environment that recapitulates several key biological features of cartilage repair during microfracture and also point toward the potential utility of such cells when combined with fibrin hydrogel scaffolds.