The purpose of this study was to investigate the repair of the osteoarthritis(OA)-induced cartilage injury by transfecting the new TGF-beta 3 fusion protein (LAP-MMP-mTGF-beta 3) with targeted therapy function into the bone marrow-derived mesenchymal stem cells (MSCs) in rats. The recombinant of pIRES-EGFP-MMP was constructed by combination of DNA encoding MMP enzyme cutting site and eukaryotic expression vector pIRES-EGFP. LAP and mTGF-beta 3 fragments were obtained from rat embryos by RT-PCR and inserted into the upstream and downstream of MMP from pIRES-EGFP-MMP respectively, so as to construct the recombinant plasmid of pIRES-EGFP-LAP-MMP-mTGF-beta 3. pIRES-EGFP-LAP-MMP-mTGF-beta 3 was transfected into rat MSCs. The genetically modified MSCs were cultured in medium with MMP-1 or not. The transfected MSCs were transplanted in the rat OA models. The OA animal models were surgically induced by anterior cruciate ligament transaction (ACLT). The pathological changes were observed under a microscope by HE staining, Alcian blue, Safranin-fast Green and graded by Mankin's scale. pIRES-EGFP-LAP-MMP-mTGF-beta 3 was successfully constructed by means of enzyme cutting and sequencing, and the mTGF-beta 3 fusion protein (39 kD) was certified by Western blotting. Those genetically modified MSCs could differentiate into chondrocytes induced by MMP and secrete the relevant-matrix. The transfected MSCs could promote chondrogenesis and matrix production in rat OA models in vivo. It was concluded that a new fusion protein LAP-MMP-mTGF-beta 3 was constructed successfully by gene engineering, and could be used to repair the OA-induced cartilage injury.