Tissue engineering has a major emphasis in creating tissue specific extracellular ambiance by altering chemical functionalities of scaffold materials. Heterogeneity of osteochondral tissue necessitates tailorable bone and cartilage specific extracellular environment. Carboxylate- and sulfate-functionalized glycosaminoglycans (GAGs) in cartilage extracellular matrix (ECM) create an acidic ambience to support chondrogenic activity, whereas phosphate-rich environment in bone enables chelation of calcium leading to the formation of mineralized matrix along with an alkaline environment to support osteogenesis. In this study, chitosan, a naturally occurring GAGs, was functionalized with phosphate/sulfate groups analogous to bone/cartilage ECM and incorporated in thermogelling agarose hydrogel for delivery to osteochondral defects. In vitro studies revealed significantly higher adhesion and proliferation of adipose derived mesenchymal stem cells (ADMSCs) with blended hydrogels as compared to that of native agarose. Cell differentiation and RT-PCR studies of the phosphorylated hydrogels revealed higher osteogenic potential, while sulfated hydrogels demonstrated enhanced chondrogenic activity in comparison to agarose. Recovery of osteochondral defects after delivery of the thermoresponsive agarose-based hydrogels decorated with phosphorylated derivatives showed significantly higher bone formation. On the other hand, cartilage formation was significant with chitosan sulfate decorated hydrogels. The study highlights the role of chitosan derivatives in osteochondral defect healing, especially phosphorylated ones as bone promoter, whereas sulfated ones act as cartilage enhancer, which was quantitatively distinguished through micro-CT-based noninvasive imaging and analysis.