The replacement of articular cartilage through transplantation of chondrogenic cells or preformed cartilage tissue represents a potential new avenue for the treatment of degenerative joint diseases. Although many studies have described differentiation of human pluripotent stem cells (hPSCs) to the chondrogenic lineage, the generation of chondrocytes able to produce stable articular cartilage in vivo has not been demonstrated. Here we show that activation of the TGFβ pathway in hPSC-derived chondrogenic progenitors promotes the efficient development of articular chondrocytes that can form stable cartilage tissue in vitro and in vivo. In contrast, chondrocytes specified by BMP4 signaling display characteristics of hypertrophy and give rise to cartilage tissues that initiate the endochondral ossification process in vivo. These findings provide a simple serum-free and efficient approach for the routine generation of hPSC-derived articular chondrocytes for modeling diseases of the joint and developing cell therapy approaches to treat them.