Introduction. Mesenchymal stem cells (MSCs) are identified by having the ability to differentiate into various tissues and typically used to generate bone tissue by a process of resembling intramembranous ossification, namely by direct osteoblastic differentiation. However, most bones develop by endochondral ossification, namely via remodeling of hypertrophic cartilaginous templates. To date, reconstruction of bone defects by endochondral ossification using mesenchymal stem cell-derived chondrocytes (MSC-DCs) have not been reported. The purpose of this study was to evaluate the effects of the transplantation of MSC-DCs on bone healing in segmental defects in rat femurs. Methods. Segmental bone defects (5, 10, 15-millimeter) were produced in the mid-shaft of the femur of the Fisher 344 rats and stabilised with an external fixator. Bone marrow was aspirated from the rat's femur and tibia at 4 weeks before operation. MSCs were isolated and grown in culture and seeded on a Poly dl-lactic-co glycolic acid (PLGA) scaffold. Subsequently, the scaffold was cultured using chondrogenic inducing medium for 21 days. The characteristics of the PLGA scaffold are radiolucent and to be absorbed in about 4 months. The Treatment Group received MSC-DCs, seeded on a PLGA scaffold, locally at the site of the bone defect, and Control Group received scaffold only. The healing processes were monitored radiographically and studied biomechanically and histologically. Results. 5-millimeter defect model: The bone defects in the Treatment Group healed radiographically with a bridging callus formation at 4 weeks after the procedure. Micro-CT scans showed that newly formed bone volume in the Treatment Group at 16 weeks was 1.5 times larger than that of the unaffected side. Biomechanical testing revealed that the Treatment Group showed more than 100% higher bending strength compared to the unaffected side at 8 weeks after the procedure. Histological examination showed that the implanted scaffold of the Treatment Group were covered with recipient periosteum-derived bridging callus and filled with cancellous bone-like tissues derived from endochondral ossification. Bone marrow was reconstituted at about 16 weeks after the procedure. Immunostaining examination revealed that the Type 2 collagen, that is the main component of cartilage (MSC-DCs) gradually disappeared and the Type 1 collagen became to be stained better by degrees, i.e. bone was formed clearly. 10, 15-millimeter defect model: Morphological changes were equivalent to 5-millimeter defect model, and the speed of bone regeneration did not depend on the size of the defect length. On the other hand, none of the Control Group achieved bone union. Conclusion. The results of this study suggested that ossification mechanism of MSC-DCs was very close to endochondral ossification. The quality, quantity, and speed of ossification overwhelm those of past similar models, and further development to new bone regeneration can be expected using this method. Summary. Transplantation of mesenchymal stem cell-derived chondrocytes (MSC-DCs) surprisingly enhances bone healing in segmental bone defects in rats significantly better than the previously reported similar therapy using MSCs