In this study, we constructed tissue-engineered cartilage using allogeneic cancellous bone matrix gelatin (BMG) as a scaffold. Allogeneic BMG was prepared by sequential defatting, demineralization and denaturation. Isolated rabbit chondrocytes were seeded onto allogeneic cancellous BMG, and cell-BMG constructs were harvested after 1, 3 and 6 weeks for evaluation by hematoxylin and eosin staining for overall morphology, toluidine blue for extracellular matrix (ECM) proteoglycans, immunohistochemical staining for collagen type II and a transmission electron microscope for examining cellular microstructure on BMG. The prepared BMG was highly porous with mechanical strength adjustable by duration of demineralization and was easily trimmed for tissue repair. Cancellous BMG showed favorable porosity for cell habitation and metabolism material exchange with larger pore sizes (100-500 mu m) than in cortical BMG (5-15 mu m), allowing cell penetration. Cancellous BMG also showed good biocompatibility, which supported chondrocyte proliferation and sustained their differentiated phenotype in culture for up to 6 weeks. Rich and evenly distributed cartilage ECM proteoglycans and collagen type II were observed around chondrocytes on the surface and inside the pores throughout the cancellous BMG. Considering the large supply of banked bone allografts and relatively convenient preparation, our study suggests that allogeneic cancellous BMG is a promising scaffold for cartilage tissue engineering.