Osteoarthritis (OA) is a chronic joint disease characterized by cartilage degeneration. In this study, we developed hydrogel microspheres for cartilage repair in OA. We designed and synthesized a novel nanomaterial using liposomes (Lipo), which exhibits cartilage-targeting ability and pH responsiveness. These liposomes were surface-functionalized with cartilage-targeting peptides (WYRGRL), encapsulated with the cationic lipid 1,2-dioleoyl-3-trimethylammonium-propane (DOTAP), incorporated with a pH-responsive hydrazone (HyD) bond, and loaded with the bioactive molecule kartogenin (KGN). These novel liposomes were embedded within methacrylated gelatin (GM) hydrogel microspheres to create the WYRGRL-DOTAP-Lipo@KGN@GM (WDLKG) hydrogel microspheres. Characterization tests revealed that the novel liposomes WYRGRL-DOTAP-Lipo@KGN (WDLK) exhibited cartilage-targeting ability and pH responsiveness and the WDLKG hydrogel microspheres showed excellent dispersibility and uniform size. Further in vitro cell-experiments demonstrated that WDLKG hydrogel microspheres effectively promoted chondrogenesis, and exhibited anti-inflammatory effects via enhancing the anabolism while reducing the catabolism in chondrocytes. Transcriptomic analysis revealed that WDLKG induced chondrogenesis primarily through collagen trimer formation and collagen-containing extracellular matrix biosynthesis. In vivo experiments in a mouse OA model confirmed the sustained release of WDLKG and demonstrated that intra-articular injection of WDLKG significantly inhibited cartilage degeneration. These findings underscore the potential of our nanomaterials for targeted therapy, advancing OA cartilage treatment.