Cartilage defects resulting from traumatic injury or degenerative diseases have very limited spontaneous healing ability. Recent progress in tissue engineering and local therapeutic gene delivery systems has led to promising new strategies for successful regeneration of hyaline cartilage. In the present study, tissue engineering and local therapeutic gene delivery systems are combined with the design of a novel gene-activated matrix (GAM) embedded with hybrid hyaluronic acid(HA)/chitosan(CS)/plasmid-DNA nanoparticles encoding transforming growth factor (TGF)-β1. A chitosan scaffold functioned as the three-dimensional carrier for the nanoparticles. Results demonstrated that scaffold-entrapped plasmid DNA was released in a sustained and steady manner over 120 days, and was effectively protected in the HA/CS/pDNA nanoparticles. Culture results demonstrated that chondrocytes grown in the novel GAM were highly proliferative and capable of filling scaffold micropores with cells and extracellular matrix. Confocal laser scanning microscopy indicated that chondrocytes seeded in the GAM expressed exogenous transgenes labeled with green fluorescent protein. ELISA results demonstrated detectable TGF-β1 expression in the supernatant of GAM cultures, which peaked at the sixth day of culture and afterwards showed a moderate decline. Histological results and biochemical assays confirmed promotion of chondrocyte proliferation. Cell culture indicated no affects on phenotypic expression of ECM molecules, such as GAG. The results of this study indicate the suitability of this novel GAM for enhanced in vitro cartilage tissue engineering.