The cells derived from differentiating embryoid bodies of human embryonic germ (hEG) cells express a broad spectrum of gene markers and have been induced toward ecto- and endodermal lineages. We describe here in vitro and in vivo differentiation of hEG-derived cells (LVEC line) toward mesenchymal tissues. The LVEC cells express many surface marker proteins characteristic of mesenchymal stem cells and differentiated into cartilage, bone, and fat. Homogenous hyaline cartilage was generated from cells after 63 population doublings. In vivo results demonstrate cell survival, differentiation, and tissue formation. The high proliferative capacity of hEG-derived cells and their ability to differentiate and form three-dimensional mesenchymal tissues without teratoma formation underscores their significant potential for regenerative medicine. The adopted coculture system also provides new insights into how a microenvironment comprised of extracellular and cellular components may be harnessed to generate hierarchically complex tissues from pluripotent cells.