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Controlled release of biologically active molecules is of importance in regulating stem cell migration and differentiation. The purpose of this study is to investigate the effect of dexamethasone (Dex) released from two different sets of poly(lactic-co-glycolic acid) (PLGA) microspheres on chondrogenic differentiation of mesenchymal stromal cells (MSCs) in vivo. Either nonporous (NPMS) or porous (PMS) Dex-loaded PLGA microspheres were fabricated using double emulsion–solvent evaporation method. Each set of microspheres was combined with a composite hydrogel of hyaluronic acid (HA) and Pluronic F127 along with the addition of rabbit MSCs. These hydrogel constructs were then injected subcutaneously in nude mouse and they were retrieved after 2 and 4 weeks respectively. Each group of microspheres presented significantly different in vitro release profiles of Dex on a temporal basis. The composite hydrogel carried a property of sol–gel transition and thus formed a gel at body temperature. It was interesting that the in vitro cell viability in the hydrogel containing NPMS was found better than the one with PMS. A sign of chondrogenic differentiation from the transplanted samples was identified from semi-quantitative reverse transcription polymerase chain reaction (RT-PCR). The gene expression of the cartilage-specific markers Sox 9 and type II collagen was notably upregulated in the PMS-loaded construct than in the NPMS-loaded one. Alcian blue staining displayed that the amount of cartilage-specific extracellular matrix glycosaminoglycan (GAG) was more visibly pronounced in the PMS group. Immunohistochemical analysis of the retrieved constructs also supported that synthesis of type II collagen was more active with the PMS group. The present work suggested that an in vivo chondrogenic potential of MSCs could be affected by characteristic release profile of chondrogenic factor in vitro.