Several studies have reported enhanced repair of damaged cartilage following implantation of mesenchymal stem cells (MSCs) into full-thickness cartilage defects suggesting that the cells in the repair tissue were derived from the implant. However, it cannot be excluded that the enhanced tissue repair is derived from host cells recruited to the defect in response to the implant, rather than the re-population of the tissue by the implanted MSCs. Our objective was to study the short-term fate of fluorescently labeled MSCs after implantation into full-thickness cartilage defects in vivo. The fluorescent dye used in our studies did not affect MSC viability or their ability to undergo osteogenic and chondrogenic differentiation in vitro. MSC gelatin constructs were implanted into full-thickness cartilage defects in goats. These cells retained the dye and were detectable by histology and flow cytometry. At intervals spanning 2 weeks post-implantation we observed gradual loss of implanted cells in the defect as well as fragments of gelatin sponge containing labeled MSCs in deep marrow spaces indicating fragmentation, dislodgement and passive migration. Fluorescent labeling enabled us to determine whether the implanted cells were lost during early time points after implantation as well as their spatial orientation throughout the defect. By determining the fate of implanted cells, new biomaterials could be engineered to correct undesirable characteristics. Testing of new biomaterials in short-term in vivo models would provide faster optimization for cell retention needed for successful, long-term cartilage regeneration.