A versatile approach to fabricate PEG-peptide copolymer gels was utilized to design niches to promote chondrogenic differentiation of human mesenchymal stem cells (hMSCs). The sequences RGD and KLER were chosen as motifs to modify PEG gels through a thiol-acrylate polymerization. The KLER sequence, a binding site from decorin protein, is known to bind strongly to collagen type II and is responsible for matrix organization, while RGD promotes general survival of encapsulated cells. hMSCs were encapsulated at 2 x 10(6) cells/mL into 10 wt % PEG gels with 1 mM CRGDSG in the presence or absence of 5 mM CKLERG. A scrambled sequence served as a control. The gels were cultured in control and chondrogenic media, containing 5 ng/mL TGFbeta(1) over a 6-week period. Cell/gel constructs were analyzed at various time points for glycosaminoglycan (GAG) content, type II collagen deposition, immunostaining, and gene analysis. After 14 days in chondrogenic cultures, cells in RGDS and KLER functionalized gels produced 2.5 times as much GAG/cell as those in gels containing only RGD. By day 28, hMSCs within the chondrogenic KLER gels produced 27-fold higher hydroxyproline than that of day 0, whereas cells in chondrogenic culture with RGDS alone produced twofold of initial. Immunostained images indicated that col II was more predominant in the KLER-derivatized gels than others, and enhanced chondrogenic differentiation in KLER containing gels was further supported by RT-PCR analysis of type II collagen and aggrecan expression. Collectively, these results demonstrate how incorporation of matrix-binding peptide interacts with hMSCs inducing chondrogenic differentiation and cartilage-specific ECM deposition.