In vitro cultured autologous mesenchymal stem cells (MSCs) within passage 5 have been approved for clinical application in stem cell-based treatment of cartilage defects. However, their chondrogenic potential has not yet been questioned or verified. In this study, the chondrogenic potential of bone marrow MSCs at passage 3 (P3 BMSCs) was investigated both in cartilage repair and in vitro, with freshly isolated bone marrow mononuclear cells (BMMNCs) as controls. The results showed that P3 BMSCs were inferior to BMMNCs not only in their chondrogenic differentiation ability but also as candidates for long-term repair of cartilage defects. Compared with BMMNCs, P3 BMSCs presented a decay in telomerase activity and a change in chromosomal morphology with potential anomalous karyotypes, indicating senescence. In addition, interindividual variability in P3 BMSCs is much higher than in BMMNCs, demonstrating genomic instability. Interestingly, remarkable downregulation in cell cycle, DNA replication and mismatch repair (MMR) pathways as well as in multiple genes associated with telomerase activity and chromosomal stability were found in P3 BMSCs. This result indicates that telomerase and chromosome anomalies might originate from expansion, leading to impaired stemness and pluripotency of stem cells. In vitro culture and expansion are not recommended for cell-based therapy, and fresh BMMNCs are the first choice.