Current methods for articular cartilage repair are unpredictable with respect to clinical success. In the present study, we investigated the ability of cells from articular cartilage, perichondrium, and costochondral resting zone to form new cartilage when loaded onto biodegradable scaffolds and implanted into calf muscle pouches of nu/nu mice. Prior in vitro studies showed that platelet derived growth factor-BB (PDGF-BB), but not transforming growth factor beta-1 (TGF-beta 1), basic fibroblast growth factor, or bone morphogenetic protein-2 promoted proliferation and extracellular matrix sulfation of resting zone chondrocytes without causing the cells to exhibit a hypertrophic chondrocyte phenotype. TGF-beta 1 has also been shown to stimulate chondrogenesis by multipotent chondroprogenitor cells like those in the perichondrium. In addition, PDGF-BB has been shown to modulate chondrogensis by resting zone cells implanted in poly(D,L-lactide-co-glycolide) (PLG) scaffolds. In the present study we examined whether the cartilage formation is dependent on state of chondrocyte maturation and whether the pretreatment of chondrocytes with growth factors has an influence on the cartilage formation. Scaffolds were manufactured from 80% PLG with a 75:25 lactide:glycolide ratio and 20% modified PLG with a 50:50 lactide:glycolide ratio (PLG-H scaffolds). For each experimental group, four nude mice received two identical implants, one in each calf muscle resulting in an N = 8 implants: PLG-H scaffolds alone; PLG-H scaffolds with cells derived from either the femoral articular cartilage, costochondral periochondrium, or costochondral resting zone cartilage of 125 g male Sprague-Dawley rats; PLG-H scaffolds with either articular chondrocytes or resting zone chondrocytes that were pretreated with 37.5 ng/ml rhPDGF-BB for 4 h or 24 h before implantation, or with perichondrial cells treated with PDGF-BB plus 0.22 ng/ml rhTGF beta-1 for 4 h and 24 h. At 4 or 8 weeks after implantation, samples were harvested and analyzed histomorphometrically for new cartilage formed, area of residual implant and area of fibrous connective tissue. Only resting zone cells showed the ability to form new cartilage at a heterotopic site in this study. There was no neocartilage found in nude mice with implants loaded with either articular chondrocytes or perichondrial cells. Pretreatment of resting zone chondrocytes for 4 h prior to implantation significantly increased the amount of newly formed cartilage after 8 weeks and suppressed chondrocyte hypertrophy. The amount of fibrous connective tissue around implants containing either articular chondrocytes or perichondrial cells decreased with time, whereas the amount of fibrous connective tissue around implants containing resting zone chondrocytes pretreated with PDGF-BB was increased. The results showed that resting zone cells can be successfully incorporated into biodegradable porous PLG scaffolds and can induce new cartilage formation in a nonweight-bearing site. Articular chondrocytes as well as perichondrial cells did not have the capacity for neochondrogenesis when implanted heterotopically in this model.