Objective The aim of this study was to evaluate the chondroprotective effect of chemically decellularized meniscal allografts transplanted into the knee joints of adult merino sheep. Methods Lateral sheep meniscal allografts were chemically processed by a multistep method to yield acellular, sterile grafts. The grafts were transplanted into the knee joints of sheep that were treated by lateral meniscectomy. Joints treated by meniscectomy only and untreated joints served as controls. The joints were analyzed morphologically 6 and 26 weeks after surgery by the macroscopical and histological OARSI (Osteoarthritis Research Society International) score. Additionally, the meniscal grafts were biomechanically tested by cyclic indentation. Results Lateral meniscectomy was associated with significant degenerative changes of the articular cartilage of the lateral joint compartment. Transplanted lateral meniscal allografts retained their integrity during the observation period without inducing significant synovitis or foreign body reactions. Cellular repopulation of the grafts was only present on the surface and the periphery of the lateral meniscus, but was still completely lacking in the center of the grafts at week 26. Transplantation of processed meniscal allografts could not prevent degenerative changes of the articular cartilage in the lateral joint compartment. Compared with healthy menisci, the processed grafts were characterized by a significantly reduced dynamic modulus, which did not improve during the observation period of 26 weeks in vivo. Conclusion Chemically decellularized meniscal allografts proved their biocompatibility and durability without inducing immunogenic reactions. However, insufficient recellularization and inferior stiffness of the grafts hampered chondroprotective effects on the articular cartilage.