Cartilage extracellular matrix (ECM) is a promising material for cartilage repair because of its bioactivity. However, the animal source of ECM unavoidably increases the risk of pathogen infection and the variability of product quality. In this study, we utilized a novel 3D culture method to prepare a new type of artificial decellularized matrix powder (DEMP) for the development of injectable, bioactive, biodegradable cell carriers for cartilage tissue engineering. This culture method combined hanging drop culture with suspension culture method, and was very efficient to produce cartilage-like tissue (CLT). By this method, an initial 2.3 × 106 chondrocyte generated as much as 58.22 mg wet weight CLT at two weeks, which proved to contain abundant glycoaminoglycans (GAGs), type II collagen, and BMP-2 and TGF-β1 growth factors by staining techniques and biochemical analysis. Subsequently, the two-week-old CLT was decellularized to prepare the artificial DEMP. In an in vitro study, it was found that MSCs cultured on DEMP differentiated to chondrocytes very well and secreted rich GAGs and type II collagen at three weeks even without exogenous TGF-β1. The in vivo study demonstrated that the DEMP not only facilitated regeneration of hyaline cartilage, which was implied by the intense staining of GAGs and type II collagen in rabbit subchondral defects at 1 month, but also benefited the regeneration of subchondral bone (bone ingrowth at 1 month: 48.22%) as shown in micro-CT data. Collectively, these results suggest that the artificial DEMP prepared by this culture method holds great potential as a novel ECM material for cartilage repair.