The breakthrough raises the possibility that human fat could be used to treat patients who have suffered disabling injuries.
Scientists from Duke University Medical Center in the US used a cocktail of steroids and growth factors to retrain cells that would normally form fat tissue into another type of cell known as a chondrocyte, or cartilage cell.
Not only were the researchers able to make cells change from one type into another in the laboratory, they grew the new chondrocytes in a three-dimensional matrix - a crucial advance for success in treating humans with cartilage damage.
But harvesting such cells is invasive and painful for the donor and the number of cells gained is small.
For the first time the Duke team demonstrated that cartilage cells can be created from fat removed during liposuction procedures.
Researcher Geoffrey Erickson said: "This holds out the possibility, some time in the future, of taking fat cells from someone with a cartilage injury and growing new cartilage within a mould to replace the damaged tissue."
Cartilage plays a crucial role in protecting the joints. However, it is poorly supplied by blood vessels, nerves and lymphatic system and so it has a very limited capacity for repair when damaged.
No remedy
Dr Farshid Guilak, director of orthopaedic research at Duke, said: "For people who suffer a cartilage-damaging injury, we don't currently have a satisfactory remedy.
The Duke researchers used material collected from liposuction procedures performed on multiple human donors.
The material was then treated with a series of enzymes and centrifuged until cells, known as adipose-derived stromal cells, remained.
These isolated cells were infused into three-dimensional beads and treated with the biochemical cocktail.
After two weeks of growth, the treated cells looked and acted like normal chondrocytes.
The researchers hope that patients with cartilage damage caused by accidents or sports injury will be treated using the technique within five years.
Dr Guilak said: "For patients with cartilage damage, we envision being able to remove a little bit of fat, and then grow customised, three-dimensional pieces of cartilage which would then be surgically implanted in the joint.
"One of the beauties of this system is that since the cells are from the same patients, there are no worries of adverse immune responses or disease transmission."
Dr Paul Watkins, honorary secretary of the British Orthopaedic Research Society, said scientists were working on other tissue engineering techniques to replace damaged cartilage tissue.
But he said: "If this technique was shown to work clinically then it could make a lot of difference to a lot of people, particularly if it alleviated the necessity to have a mechanical joint replacement."