While matrix-assisted autologous chondrocyte implantation has emerged as a promising therapy to treat focal chondral defects, matrices that support regeneration of hyaline cartilage remain challenging. The goal of this work was to investigate the potential of a matrix metalloproteinase (MMP)-sensitive poly(ethylene glycol) (PEG) hydrogel containing the tethered growth factor, transforming growth factor β3 (TGF-β3), and compare cartilage regeneration in vitro and in vivo. The in vitro environment comprised chemically-defined medium while the in vivo environment utilized the subcutaneous implant model in athymic mice. Porcine chondrocytes were isolated and expanded in 2D culture for 10 days prior to encapsulation. The presence of tethered TGF-β3 reduced cell spreading. Chondrocyte-laden hydrogels were analyzed for total sulfated glycosaminoglycan and collagen contents, MMP activity, and spatial deposition of aggrecan, decorin, biglycan, and collagens type II and I. The total amount of extracellular matrix (ECM) deposited in the hydrogel constructs was similar in vitro and in vivo. However, the in vitro environment was not able to support long-term culture up to 64 days of the engineered cartilage leading to the eventual breakdown of aggrecan. The in vivo environment, on the other hand, led to more elaborate ECM, which correlated with higher MMP activity, and an overall higher quality of engineered tissue that was rich in aggrecan, decorin, biglycan and collagen type II with minimal collagen type I. Overall, the MMP-sensitive PEG hydrogel containing tethered TGF-β3 is a promising matrix for hyaline cartilage regeneration in vivo. STATEMENT OF SIGNIFICANCE: Regenerating hyaline cartilage remains a significant clinical challenge. The resultant repair tissue is often fibrocartilage, which long-term cannot be sustained. The goal of this study was to investigate the potential of a synthetic hydrogel matrix containing peptide crosslinks that can be degraded by enzymes secreted by encapsulated cartilage cells (i.e., chondrocytes) and tethered growth factors, specifically TGF-β3, to provide localized chondrogenic cues to the cells. This hydrogel led to hyaline cartilage-like tissue growth in vitro and in vivo, with minimal formation of fibrocartilage. However, the tissue formed in vitro, could not be maintained long-term. In vivo this hydrogel shows great promise as a potential matrix for use in regenerating hyaline cartilage.,Copyright © 2019. Published by Elsevier Ltd.