Methods and compositions are provided for the treatment and repair of defects or lesions in the cartilage of humans and other animals. The defect or lesion in the cartilage may be first treated with an enzyme to remove proteoglycans from the defect area. To induce cartilage formation, the defect is filled or otherwise dressed with a biodegradable matrix having pores sufficiently large to allow repair cells to populate the matrix. The matrix filling the defect contains a proliferation agent at a concentration sufficient to stimulate proliferation of repair cells and a transforming factor in an appropriate delivery system to release the transforming factor at a concentration sufficient to transform repair cells in the matrix and defect area into cartilage-producing chondrocytes. The matrix may also contain a chemotactic agent to attract repair cells. The entire treatment may be carried out in a single arthroscopic or open surgical procedure.