This invention provides a system for obtaining cells of the chondrocytelineage by differentiating primate pluripotent stem cells. The processinvolves culturing the cells as a micromass or other aggregate form in acocktail of differentiation agents that facilitates outgrowth of the desiredcell type. Progeny are capable of synthesizing Type II collagen or aggrecan,or other products that are characteristic of the chondrocyte lineage.Chondrocytes and chondrocyte precursor cells obtained according to thisdisclosure are suitable for use in both research and clinical therapy.