Cell-based therapy using chondrocytes for cartilage repair suffers from chondrocyte dedifferentiation. In the present study, the effects of an integrated three-dimensional and dynamic culture on rabbit articular chondrocytes were investigated. Cells (passages 1 and 4) were encapsulated in alginate gel beads and cultured in spinner flasks in chondrogenic and chondrocyte growth media. Subcutaneous implantation of the cell-laden beads was performed to evaluate the ectopic chondrogenesis. It was found that cells remained viable after 35 days in the three-dimensional dynamic culture. Passage 1 cells demonstrated a proliferative growth in both media. Passage 4 cells showed a gradual reduction in DNA content in growth medium, which was attenuated in chondrogenic medium. Deposition of glycosaminoglycans (GAG) was found in all cultures. While passage 1 cells generally produced higher amounts of GAG than passage 4 cells, GAG/DNA became similar on day 35 for both cells in growth media. Interestingly, GAG/DNA in growth medium was greater than that in chondrogenic medium for both cells. Based on GAG quantification and gene expression analysis, encapsulated passage 1 cells cultured in growth medium displayed the best ectopic chondrogenesis. Taken together, the three-dimensional and dynamic culture for chondrocytes holds great potential in cartilage regeneration.