The stem cell niche, or microenvironment, consists of soluble, matrix, cell and mechanical factors that together determine the cellular fates and/or differentiation patterns of stem cells. Collagen and glycosaminoglycans (GAGs) are important scaffolding materials that can mimic the natural matrix niche. Here, we hypothesize that imposing changes in the scaffold composition or, more specifically, incorporating GAGs into the collagen meshwork, will affect the morphology, cytoskeletal organization and integrin expression profiles, and hence the fate of human mesenchymal stem cells (MSCs) upon the induction of differentiation. Using chondrogenesis as an example, we microencapsulated MSCs in three scaffold systems that had varying matrix compositions: collagen alone (C), aminated collagen (AC) and aminated collagen with GAGs (ACG). We then induced the MSCs to differentiate toward a chondrogenic lineage, after which, we characterized the cell viability and morphology, as well as the level of cytoskeletal organization and the integrin expression profile. We also studied the fate of the MSCs by evaluating the major chondrogenic markers at both the gene and protein level. In C, MSC chondrogenesis was successfully induced and MSCs that spread in the scaffolds had a clear actin cytoskeleton; they expressed integrin α2β1, α5 and αv; promoted sox9 nuclear localization transcription activation; and upregulated the expression of chondrogenic matrix markers. In AC, MSC chondrogenesis was completely inhibited but the scaffold still supported cell survival. The MSCs did not spread and they had no actin cytoskeleton; did not express integrin α2 or αv; they failed to differentiate into chondrogenic lineage cells even on chemical induction; and there was little colocalization or functional interaction between integrin α5 and fibronectin. In ACG, although the MSCs did not express integrin α2, they did express integrin αv and there was strong co-localization and hence functional binding between αv and fibronectin. In addition, vimentin was the dominant cytoskeletal protein in these cells, and the chondrogenic marker genes were expressed but at a much lower level than in the MSCs encapsulated in C alone. This work suggests the importance of controlling the matrix composition as a strategy to manipulate cell-matrix interactions (through changes in the integrin expression profile and cytoskeleton organization), and hence stem cell fates.