In vitro expansion of mesenchymal stem cells (MSCs) has been implicated in loss of multipotency, leading to impaired chondrogenic potential and an eventual therapeutic effect, as reported in our previous study. However, the precise regulatory mechanism is still unclear. Here, we demonstrate that endoplasmic reticulum (ER) stress and the unfolded protein response (UPR) were involved in transformation of MSCs induced by in vitro culture based on the comparative profiling of in vitro cultured bone marrow MSCs at passage 3 (P3 BMSCs) vs. fresh P0 BMSCs by microarray analysis. Indeed, RT-PCR and Western blot analysis showed significantly lower expression levels of three key UPR-related molecules, ATF4, ATF6 and XBP1, in P3 BMSCs than P0 BMSCs. Further, we found that UPR suppression by 4-phenylbutyrate (4-PBA) reduced the chondrogenic potential of P0 BMSCs and further cartilage regeneration. Conversely, UPR induction by tunicamycin (TM) enhanced the chondrogenic differentiation of P3 BMSCs and the therapeutic effect on cartilage repair. Thus, the decline in the chondrogenic potential of stem cells after in vitro culture and expansion may be due to changes in ER stress and the UPR pathway.