Osteoarthritis (OA) is a progressive disease associated with cartilage injury and its inherently limited repair capability. Synovium-based cellular constructs (sConstructs) are proposed as possible treatments. Equine sConstructs were produced from decellularized synovium-based extracellular matrix scaffolds (sECM) seeded with synovium-derived mesenchymal stem cells (sMSC), and engineered to express green fluorescent protein (GFP), or bone morphogenetic protein-2 (BMP-2). Survival, distribution, and chondrogenic potential of the sConstructs in vitro and in vivo were assessed. sConstructs in co-culture with chondrocytes increased chondrocyte proliferation, viability, and Col II production, greatest in BMP-2-sConstructs. Chondrocyte presence increased the production of hyaluronic acid (HA), proteoglycan (PG), and BMP-2 by the sConstructs in a positive feedback loop. sECM alone, or GFP- or BMP-2-sConstructs were implanted in synovium adjacent to clinically created full-thickness rat-knee cartilage lesions. At 5 weeks, the lesion area and implants were resected. Gross anatomy, adjacent articulate cartilage growth and subchondral bone repair were scored; and peripheral, central and cartilage lesion measurements taken. For all scores and measurements, sConstruct implants were significantly greater than controls, greatest with the BMP-2-sConstructs. Immunohistochemistry demonstrated migration of endogenous cells into the sECM, with greater cellularity in the constructs with intense positive GFP staining confirming engraftment of implanted sMSC and continued gene expression. In summary, exposing cartilage to sConstructs was chondrogenic in vitro and in vivo, and resulted in substantially increased growth in vivo. This effect was mediated, in part, by soluble ECM and cell factors and upregulation of anabolic growth proteins, such as BMP-2. This work is "proof of concept" that sConstructs surgically implanted adjacent to cartilage damage can significantly improve cartilage and subchondral bone repair, and potentially prevent the progression of OA.