Osteoarthritis (OA) is an inflammatory degenerative disease that affects every fourth person with irreversible damage to the articular. Mesenchymal stem cells (MSCs) have been shown to affect host cells by paracrine stimulation in regenerative environments. Here we apply hyaluronic acid (HA), an essential part of the extracellular matrix in cartilage, for MSC immobilization. The aim was to investigate long-term MSC survival and paracrine effect on chondrocytes in an inflammatory co-culture environment. We hypothesized that MSCs immobilized in a HA hydrogel could provide a long-term immunomodulatory effect on chondrocytes in vitro. Human MSCs were seeded in a HA hydrogel and co-cultured with non-osteoarthritic human chondrocytes in biphasic wells inhibiting cellular contact. An inflammatory environment was induced by IL1-beta and compared with standard culture medium. Relative gene expressions of collagen types I, II and X, aggrecan, SOX9, MMP-13 and ADAMTS-5) were examined at day 3,7,14 and 28. Significant up-regulation of SOX9 at day 7, 14 and 28 and a significant down-regulation of ADAMTS-5 (day 14 and 28) was observed with co-culture of HA-immobilized MSCs and MSCs compared with controls with or without HA (without MSCs)No changes in expression was observed for aggrecan and collagen type 1. We showed that MSC affect the expression of SOX9 and ADAMTS-5 in a paracrine manner when co-cultured with chondrocytes in an inflammatory environment. MSCs immobilized in HA hydrogels survived and were contained in the hydrogel for up to 28 days. This suggests that HA-immobilized MSCs could potentially be used as adjuvant treatment of OA.