The aim of this work is to explore the feasibility and therapeutic effect of repairing rabbit articular cartilage defects using thermo-sensitive chitosan/poly (vinyl alcohol) composite hydrogel engineered Ad-hTGF-β1-transfected bone marrow mesenchymal stem cells. Rabbit's bone marrow stromal cells (BMSCs) were obtained and cultured in vitro and transfected with a well-constructed Ad-hTGF-β1 vector, the cartilage phenotype of the transfected cells was tested by reverse transcription polymerase chain reaction (RT-PCR) and Western blot. Twenty-four New Zealand white rabbits with articular cartilage defects were randomly divided into four groups: group A was treated with CS/PVA gel and transfected BMSCs; group B received CS/PVA gel and un-transfected BMSCs; group C was treated with CS/PVA gel alone and group D was the untreated control group. Experimental animals of each group were killed at 16 weeks after operation. General observation, Masson's trichrome staining and collagen II immunohistological staining of the specimens were performed to evaluate the repair effect. The Wakitani scoring method was used to evaluate the repair effect. RT-PCR and Western blot confirmed that the hTGF-β1 gene was expressed in BMSCs and triggered the expression of specific markers of cartilage differentiation such as aggrecan mRNA and Collagen II in BMSCs after transfection with Ad-hTGF-β1. Sixteen weeks after operation, the defects in group A had smooth and flat surfaces, and the defects appeared to have completely healed, exhibiting almost the same color and texture as the surrounding cartilage. Masson's trichrome staining showed that the cell arrangement and density of regenerated cartilage tissue in group A was not significantly different from that of normal cartilage tissue. The immunohistochemical staining of Col II showed a strong expression in group A and weak expression in group B, but no expression in groups C and D. According to the Wakitani score, the difference between experimental group A and all of the other groups was statistically significant (P < 0.01). To conclude, as a thermosensitive and injectable scaffold material, CS/PVA gel engineered with BMSCs transfected with hTGF-β1 can effectively repair rabbit articular cartilage defects.