Bone morphogenetic proteins play important roles in connective tissue morphogenesis. In this study, we used human multipotential mesenchymal cells as a target to analyze the effect of bone morphogenetic proteins on chondrogenesis. We also analyzed the effect of proinflammatory cytokine interleukin-1 on chondrogenic-differentiated cells and the interaction of IL-1beta with bone morphogenetic proteins. Cells placed in a 3-dimensional matrix of alginate beads and cultured in a serum-free media with bone morphogenetic protein-2 and -9 induced expression of type II collagen (Col2A1) mRNA and increased expression of aggrecan and cartilage oligomeric matrix protein suggesting chondrogenic differentiation of the cells. The transcription factor Sox-9 that regulates both Col2A1 and aggrecan gene expression showed increased expression with BMP treatment. Chondrogenic differentiated cells treated with interleukin-1 decreased Sox-9, Col2A1 and aggrecan gene expression. Removal of interleukin-1 and further addition of bone morphogenetic proteins resulted in returned expression of chondrogenic markers. Chondrogenic differentiated cells cultured in the presence of different concentrations of bone morphogenetic proteins and interleukin-1 showed that bone morphogenetic proteins were able to partially block the suppressive effect of interleukin-1. This study shows that bone morphogenetic proteins play an important role in chondrogenesis and may prove to be potential therapeutics in cartilage repair.