Midazolam, a benzodiazepine derivative, is widely used for sedation and surgery. However, previous studies have demonstrated that Midazolam is associated with increased risks of congenital malformations, such as dwarfism, when used during early pregnancy. Recent studies have also demonstrated that Midazolam suppresses osteogenesis of mesenchymal stem cells (MSCs). Given that hypertrophic chondrocytes can differentiate into osteoblast and osteocytes and contribute to endochondral bone formation, the effect of Midazolam on chondrogenesis remains unclear. In this study, we applied a human MSC line, the KP cell, to serve as an in vitro model to study the effect of Midazolam on chondrogenesis. We first successfully established an in vitro chondrogenic model in a micromass culture or a 2D high‐density culture performed with TGF‐β‐driven chondrogenic induction medium. Treatment of the Midazolam dose‐dependently inhibited chondrogenesis, examined using Alcian blue‐stained glycosaminoglycans and the expression of chondrogenic markers, such as SOX9 and type II collagen. Inhibition of Midazolam by peripheral benzodiazepine receptor (PBR) antagonist PK11195 or small interfering RNA rescued the inhibitory effects of Midazolam on chondrogenesis. In addition, Midazolam suppressed transforming growth factor‐β‐induced Smad3 phosphorylation, and this inhibitory effect could be rescued using PBR antagonist PK11195. This study provides a possible explanation for Midazolam‐induced congenital malformations of the musculoskeletal system through PBR.