Pluripotent embryonic stem (ES) cells have complete potential for all the primary germ layers, such as ectoderm, mesoderm, and endoderm. However, the cellular and molecular mechanisms that control their lineage-restricted differentiation are not understood. Although embryoid bodies, which are formed because of the spontaneous differentiation of ES cells, have been used to study the differentiation into different cell types, including neurons, chondrocytes, insulin-producing cells, bone-forming cells, hematopoietic cells, and so on, this system has limitations for investigating the upstream events that lead to commitment of cells that occur during the inaccessible period of development. Recent developments in human ES cells have offered a challenge to develop strategies for understanding the basic mechanisms that play a key role in differentiation of stem cell into specific cell types for their applications in regenerative medicine and cell-based therapies. A micromass culture system was developed to induce the differentiation of ES cells into chondrocytes, the cartilage-producing cells, as a model to investigate the upstream events of stem cell differentiation. ES cells were co-cultured with limb bud progenitor cells. A high percentage of differentiated cells exhibit typical morphological characteristics of chondrocytes and express cartilage matrix genes such as collagen type II and proteoglycans, suggesting that signals from the progenitor cells are sufficient to induce ES cells into the chondrogenic lineage. Degeneration of cartilage in the joints is associated with osteoarthritis, which affects the quality of life of human patients. Therefore, the quantitative production of chondrocytes can be a powerful resource to alleviate the suffering of those patients.