The repair of large cartilage defects remains highly challenging in the fields of orthopedics and oral and maxillofacial surgery. A chondroinductive agent is promising to activate endogenous mesenchymal stem cells (MSCs) so as to facilitate cartilage regeneration. In this study, we analyze the crystallographic data of the critical binding domain of transforming growth factor β3 (TGF-β3) with its type II receptor and successfully develop a novel chondroinductive peptide - TGF-β3-derived peptide No. 8 (TP8) that can induce an ectopic cartilage formation without obvious bone formation. TP8 shows a comparable capacity as TGF-β3 in enhancing glycosaminoglycans (GAGs) and proteoglycans (PGs) secretion in the micromass of bone marrow MSCs (BMSCs) and promoting the expression of chondrogenic markers in comparison with the Control group. TP8 induces a significantly higher expression of the SRY-box transcription factor 9 (Sox9) gene than TGF-β3. Moreover, TP8 significantly upregulates the phosphorylation of Smad1/5 but not MAPK/JNK or Smad 2/3. The knockdown of low-density lipoprotein receptor (LDLR) -related protein-1 (Lrp1), a transmembrane endocytosis receptor, nullifies the TP8-induced Sox9 expression. In the critical-size cartilage defects in rabbit medial femoral condyles, TP8 can induce neo-cartilage formation with a significantly thicker deep zone in comparison with the TGF-β3 and Control. These findings suggest a promising application potential of TP8 in cartilage tissue engineering.