Evidence exists that cells of mesenchymal origin show a differentiation plasticity that depends on their differentiation state. We used in vitro differentiation of embryonic stem cells through embryoid bodies as a model to analyze chondrogenic and osteogenic differentiation because embryonic stem cells recapitulate early embryonic developmental phases during in vitro differentiation. Here, we show that embryonic stem cells differentiate into chondrocytes, which progressively develop into hypertrophic and calcifying cells. At a terminal differentiation stage, cells expressing an osteoblast-like phenotype appeared either by transdifferentiation from hypertrophic chondrocytes or directly from osteoblast precursor cells. Chondrocytes isolated from embryoid bodies initially dedifferentiated in culture but later re-expressed characteristics of mature chondrocytes. The process of redifferentiation was completely inhibited by transforming growth factor β3. In clonal cultures of chondrocytes isolated from embryoid bodies, additional mesenchymal cell types expressing adipogenic properties were observed, which suggests that the subcultured chondrocytes indeed exhibit a certain differentiation plasticity. The clonal analysis confirmed that the chondrogenic cells change their developmental fate at least into the adipogenic lineage. In conclusion, we show that chondrocytic cells are able to transdifferentiate into other mesenchymal cells such as osteogenic and adipogenic cell types. These findings further strengthen the view that standardized selection strategies will be necessary to obtain defined cell populations for therapeutic applications.