Osteoarthritis (OA) is a common joint disease that results from the disintegration of joint cartilage and the underlying bone. Because cartilage and chondrocytes lack the ability to self-regenerate, efforts have been made to utilize stem cells to treat OA. Although various methods have been used to differentiate stem cells into functional chondrocytes, the currently available methods cannot induce stem cells to undergo differentiation into chondrocyte-like cells without inducing characteristics of hypertrophic chondrocytes, which finally lead to cartilage disintegration and calcification. Therefore, an optimized method to differentiate stem cells into chondrocytes that do not display undesired phenotypes is needed. This study focused on differentiating adipose-derived stem cells (ASCs) into functional chondrocytes using a small molecule that regulated the expression of Sox9 as a key factor in cartilage development and then explored its ability to treat OA. We selected ellipticine (ELPC), which induces chondrocyte differentiation of ASCs, using a GFP-Sox9 promoter vector screening system. An in vivo study was performed to confirm the recovery rate of cartilage regeneration with ASC differentiation into chondrocytes by ELPC in a collagenase-induced animal model of OA. Taken together, these data indicate that ellipticine induces ASCs to differentiate into mature chondrocytes without hypertrophic chondrocytes in vitro and in vivo, thus overcoming a problem encountered in previous studies. These results indicate that ELPC is a novel chondrocyte differentiation-inducing drug that shows potential as a cell therapy for OA.