Skeletal development is a multistep process that involves the complex interplay of multiple cell types at different stages of development. Besides biochemical and physical cues, oxygen tension also plays a pivotal role in influencing cell fate during skeletal development. At physiological conditions, bone cells generally reside in a relatively oxygenated environment whereas chondrocytes reside in a hypoxic environment. However, it is technically challenging to achieve such defined, yet diverse oxygen distribution on traditional in vitro cultivation platforms. Instead, engineered osteochondral constructs are commonly cultivated in a homogeneous, stable environment. In this study, we describe a customized perfusion bioreactor having stable positional variability in oxygen tension at defined regions. Further, engineered collagen constructs were coaxed into adopting the shape and dimensions of defined cultivation platforms that were precasted in 1.5% agarose bedding. After cultivating murine embryonic stem cells that were embedded in collagen constructs for 50 days, mineralized constructs of specific dimensions and a stable structural integrity were achieved. The end-products, specifically constructs cultivated without chondroitin sulfate A (CSA), showed a significant increase in mechanical stiffness compared with their initial gel-like constructs. More importantly, the localization of osteochondral cell types was specific and corresponded to the oxygen tension gradient generated in the bioreactor. In addition, CSA in complementary with low oxygen tension was also found to be a potent inducer of chondrogenesis in this system. In summary, we have demonstrated a customized perfusion bioreactor prototype that is capable of generating a more dynamic, yet specific cultivation environment that could support propagation of multiple osteochondral lineages within a single engineered construct in vitro. Our system opens up new possibilities for in vitro research on human skeletal development.