A new type of synthetic hydrogel scaffold that mimics certain aspects of structure and function of natural extracellular matrix (ECM) has been developed. We previously reported the conjugation of collagen mimetic peptide (CMP) to poly(ethylene oxide) diacrylate (PEODA) to create a polymer-peptide hybrid scaffold for a suitable cell microenvironment. In this study, we showed that the CMP-mediated microenvironment enhances the chondrogenic differentiation of mesenchymal stem cells (MSCs). MSCs were harvested and photo-encapsulated in CMP-conjugated PEODA (CMP/PEODA). After 3 weeks, the histological and biochemical analysis of the CMP/PEODA gel revealed twice as much glycosaminoglycan and collagen contents as in control PEODA hydrogels. Moreover, MSCs cultured in CMP/PEODA hydrogel exhibited a lower level of hypertrophic markers, core binding factor alpha 1, and type X collagen than MSCs in PEODA hydrogel as revealed by gene expression and immunohistochemisty. These results indicate that CMP/PEODA hydrogel provides a favorable microenvironment for encapsulated MSCs and regulates their downstream chondrogenic differentiation.