While biochemical and biomechanical cues are known to play important roles in directing stem cell differentiation, there remains little known regarding how these inextricably linked biological cues impact the differentiation fate of human marrow stromal cells (hMSCs). This study investigates the chondrogenic differentiation potential of hMSCs when encapsulated in a three dimensional (3D) hydrogel and exposed to a biochemical cue, chondroitin sulfate (ChS), a biomechanical cue, dynamic loading, and their combination. hMSCs were encapsulated in bioinert poly(ethylene glycol) (PEG) hydrogels only, PEG hydrogels modified with covalently incorporated methacrylated ChS and cultured under free swelling conditions or subjected to delayed intermittent dynamic loading for 2 weeks. The 3D hydrogel environment led to the expression of chondrogenic genes (SOX9) and proteins (aggrecan and collagen II), but also upregulated hypertrophic genes (RUNX2 and Col X mRNA) and proteins (collagen X), while the application of loading generally led to a downregulation in chondrogenic proteins (collagen II). The presence of ChS led to elevated levels of aggrecan, but also collagen I, protein expression and when combined with dynamic loading downregulated, but did not suppress, hypertrophic genes (Col X and RUNX2) and collagen I protein expression. Taken together, this study demonstrates that while the 3D environment induces early terminal differentiation during chondrogenesis of hMSCs, the incorporation of ChS into PEG hydrogels may slow the terminal differentiation process down the hypertrophic lineage particularly when dynamic loading is applied. Biotechnol. Bioeng. 2012; 109: 2671-2682. (c) 2012 Wiley Periodicals, Inc.