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Treatment of osteochondral defects continues to pose a major challenge for patients and orthopedic surgeons due to the limited healing potential of articular cartilage. Mesenchymal stem cells (MSCs) possess therapeutic potential for the treatment of osteochondral pain and pathology. However, it is necessary to use proper labeling and imaging agent of stem cells that can decipher its role posttransplantation. A major limitation of routinely used contrast agents is signal dilution over a period of time which limits its use for further studies. At the same time, regeneration of fibrocartilage over native hyaline cartilage also limits the use of conventional therapies. The present study evaluates the efficacy of bone marrow-derived mesenchymal stem cells (BMSCs) for the treatment of osteochondral defect in rats with the regeneration of hyaline cartilage in situ and in vivo monitoring of the stem cells using L-lysine functionalized magnetic iron oxide nanoparticles (lys-IONPs). L-lysine stabilizes the iron oxide nanoparticles, enhances the biocompatibility, and provides functionalities for efficient stem cell labeling. in vitro toxic effects of lys-IONPs on mitochondrial impairment, morphological alterations, and actin cytoskeleton reveal minimum damage to BM-MSCs. Histological data (H and E, Masson's trichrome and immunohistochemistry) describe the early initiation of healing and regeneration of hyaline-like cartilage over fibrocartilage in stem cell treated groups. MR scans demonstrate generation of hypointense signals in lys-IONPs-BMSCs with improved signal intensity and minimum loss over 28 days revealing its use as a long-term stem cell labeling and imaging agent. K E Y W O R D S bone marrow mesenchymal stem cells, iron oxide nanoparticles, L-lysine, magnetic resonance imaging, osteochondral defect 1 | INTRODUCTION Osteochondral defects in the knee joint remain to be the most challenging clinical problem for orthopedic surgeons with maximum disability in young athletes and older people (Kumbhar et al., 2017). The overall prevalence rate of osteochondral defect is found to be higher in males than in females (3:1) with young adults at the highest risk (Weiss et al., 2016). Owing to the restricted therapeutic ability of articular cartilage, it is complicated to treat osteochondral defects, leading to disabling pain and early osteoarthritis (Perera, Gikas, & Bentley, 2012). Thus,