Repairing cartilage defects using thermosensitive hydrogels is an attractive treatment strategy, but the poor mechanical properties and limited understanding of the interactions between hydrogels and cells limit their application. Methods: In this study, a thermosensitive hydroxypropyl chitin hydrogel (HPCH) was functionalized with methacrylate groups to synthesize photocrosslinkable glycidyl methacrylate-modified HPCH (GM-HPCH). GM-HPCH could form a gel in situ through a thermosensitive sol-gel transition and its mechanical properties can be improved by UV irradiation. Cell viability, cell adhesion and anti-apoptosis activity of GM-HPCH were evaluated. Transforming growth factor-beta 1 (TGF beta 1) was introduced into the GM-HPCH hydrogel to fabricate the composite hydrogel. The macrophage immunomodulation, MSC recruitment and chondrogenesis of the composite hydrogel were evaluated. Results: With high biocompatibility, GM-HPCH could protect chondrocytes from apoptosis. Both the in vitro and in vivo experiments showed that GM-HPCH + TGF beta 1 shifted the recruited macrophages from M1 to M2 and promoted chondrogenic gene expression. Additionally, the composite hydrogel could promote the migration of marrow stromal cells (MSCs) in the Transwell test and increase migrated gene expression. The fluorescent tracking of MSCs confirmed MSC homing in the rat chondral defect with the help of GM-HPCH. The macroscopic evaluation and histological results at 6 weeks and 12 weeks postsurgery showed that GM-HPCH + TGF beta 1 can achieve superior cartilage healing. Conclusions: The GM-HPCH + TGF beta 1 hydrogel effectively promoted cartilage repair via immunomodulating macrophages, recruiting MSCs and promoting chondrogenesis; thus it is a promising injectable hydrogel for cartilage regeneration.