Umbilical cord blood (UCB) is a promising alternative source of mesenchymal stem cells (MSCs), because UCB-MSCs are abundant and harvesting them is a painless non-invasive procedure. Potential clinical applications of UCB-MSCs have been identified, but their ability for chondrogenic differentiation has not yet been fully evaluated. The aim of our work was to characterize and determine the chondrogenic differentiation potential of human UCB-MSCs (hUCB-MSCs) for cartilage tissue engineering using an approach combining 3D culture in type I/III collagen sponges and chondrogenic factors. Our results showed that UCB-MSCs have a high proliferative capacity. These cells differentiated easily into an osteoblast lineage but not into an adipocyte lineage. Furthermore, BMP-2 and TGF-β1 potentiated chondrogenic differentiation, as revealed by a strong increase in mature chondrocyte-specific mRNA (COL2A1, COL2B, ACAN) and protein (type II collagen) markers. Although growth factors increased the transcription of hypertrophic chondrocyte markers such as COL10A1 and MMP13, the cells present in the neo-tissue maintained their phenotype and did not progress to terminal differentiation and mineralization of the extracellular matrix after subcutaneous implantation in nude mice. Our study demonstrates that our culture model has efficient chondrogenic differentiation, and that hUCB-MSCs can be a reliable source for cartilage tissue engineering.