Human mesenchymal stem cells (hMSCs) derived from bone marrow have the capacity to differentiate along a number of connective tissue pathways and are an attractive source of chondrocyte precursor cells. When these cells are cultured in a three-dimensional format in the presence of transforming growth factor–β, they undergo characteristic morphological changes concurrent with deposition of cartilaginous extracellular matrix (ECM). In this study, factors influencing hMSC chondrogenesis were investigated using an alginate layer culture system. Application of this system resulted in a more homogeneous and rapid synthesis of cartilaginous ECM than did micromass cultures and presented a more functional format than did alginate bead cultures. Differentiation was found to be dependent on initial cell seeding density and was interrelated to cellular proliferation. Maximal glycosaminoglycan (GAG) synthesis defined an optimal hMSC seeding density for chondrogenesis at 25 × 10⁶ cells/ml. Inclusion of hyaluronan in the alginate layer at the initiation of cultures enhanced chondrogenic differentiation in a dose-dependent manner, with maximal effect seen at 100 μg/ml. Hyaluronan increased GAG synthesis at early time points, with greater effect seen at lower cell densities, signifying cell–cell contact involvement. This culture system offers additional opportunities for elucidating conditions influencing chondrogenesis and for modeling cartilage homeostasis or osteoarthritic changes.