The introduction of mesenchymal stem cells (MSC) into the field of tissue engineering for bone and cartilage repair is a promising development, since these cells can be expanded ex vivo to clinically relevant numbers and, after expansion, retain their ability to differentiate into different cell lineages. Mesenchymal stem cells isolated from various tissues have been intensively studied and characterized by many research groups. To obtain functionally active differentiated tissue, tissue engineered constructs are cultivated in vitro statically or dynamically in bioreactors under controlled conditions. These conditions include special cell culture media, addition of signalling molecules, various physical and chemical factors and the application of different mechanical stimuli. Oxygen concentration in the culture environment is also a significant factor which influences MSC proliferation, stemness and differentiation capacity. Knowledge of the different aspects which affect MSC differentiation in vivo and in vitro will help researchers to achieve directed cell fate without the addition of differentiation agents in concentrations above the physiological range.