Hypertrophic differentiation occurs during in vitro chondrogenesis of mesenchymal stem cells (MSCs), decreasing the quality of the cartilage construct. Previously we identified WNT pathway antagonists Dickkopf 1 homolog (DKK1) and frizzled-related protein (FRZB) as key factors in blocking hypertrophic differentiation of human MSCs (hMSCs). In this study, we investigated the role of endogenously expressed DKK1 and FRZB in chondrogenesis of hMSC and chondrocyte redifferentiation and in preventing cell hypertrophy using three relevant human cell based systems, isolated hMSCs, isolated primary human chondrocytes (hChs), and cocultures of hMSCs with hChs for which we specifically designed neutralizing nano-antibodies. We selected and tested variable domain of single chain heavy chain only antibodies (VHH) for their ability to neutralize the function of DKK1 or FRZB. In the presence of DKK1 and FRZB neutralizing VHH, glycosaminoglycan and collagen type II staining were significantly reduced in monocultured hMSCs and monocultured chondrocytes. Furthermore, in cocultures, cells in pellets showed hypertrophic differentiation. In conclusion, endogenous expression of the WNT antagonists DKK1 and FRZB is necessary for multiple steps during chondrogenesis: first DKK1 and FRZB are indispensable for the initial steps of chondrogenic differentiation of hMSCs, second they are necessary for chondrocyte redifferentiation, and finally in preventing hypertrophic differentiation of articular chondrocytes.