We have developed a biomimetic growth factor delivery system that effectively stimulates the chondrogenic differentiation of the cultured mesenchymal stem cells via the controlled presentation of bone morphogenetic protein 2 (BMP-2). Hyaluronic acid (HA)-based, microscopic hydrogel particles (HGPs) with inherent nanopores and defined functional groups were synthesized by an inverse emulsion polymerization technique. Recombinantly produced, heparan sulfate (HS)-bearing perlecan domain I (PlnDI) was covalently immobilized to HA HGPs (HGP-P1) via a flexible poly(ethylene glycol) (PEG) linker through the lysine amines in the core protein of PlnDI employing reductive amination. Compared to HGP without PlnDI, HGP-P1 exhibited significantly (p<0.05) higher BMP-2 binding capacity and distinctly different BMP-2 release kinetics. Heparitinase treatment increased the amount of BMP-2 released from HGP-P1, confirming the HS-dependent BMP-2 binding. While BMP-2 was released from HGPs with a distinct burst release followed by a minimal cumulative release, its release from HGP-P1 exhibited a minimal burst release followed by linear release kinetics over 15 days. The bioactivity of the hydrogel particles was evaluated using micromass culture of multipotent mesenchymal stem cells (MSCs), and the chondrogenic differentiation was assessed by the production of glycosaminoglycan, aggrecan and collagen type II. Our results revealed that BMP-2 loaded HGP-P1 stimulates more robust cartilage specific ECM production as compared to BMP-2 loaded HGP, due to the ability of HGP-P1 to potentiate BMP-2 and modulate its release with a near zero-order release kinetics. The PlnDI conjugated, HA HGPs provide an improved BMP-2 delivery system for stimulating chondrogenic differentiation in vitro, with potential therapeutic application for cartilage repair and regeneration.