Despite significant progress in cartilage regeneration therapeutics, several challenges remain in achieving optimal results under in vivo conditions. The present research evaluated the chondrogenic potential of poly(glycerol sebacate) copolymer nanofibrous scaffold (PGS NF) loaded with growth differentiation factor-5 incorporated sugar glass nanoparticles (SGnP-GDF5), in combination with allogenic bone marrow-derived mesenchymal stem cells (BM-MSC) in a rabbit model. A full-thickness chondral defect of 4 mm diameter was created in the trochlear facet of the left femur of rabbits using a Brad point drill bit. PGS NF was used in group B, BM-MSC laden PGS NF in group C, SGnP-GDF5 loaded PGS NF in group D, and BM-MSC laden SGnP-GDF5 loaded PGS NF in group E. Five animals from each group were sacrificed on days 60 and 90 post-treatment. The samples were assessed based on gross morphology, histopathology, scanning electron microscopy (SEM), and micro-computed tomography (micro-CT) analysis to evaluate regeneration. The SGnP-GDF5 PGS NF group and the BM-MSC laden SGnP-GDF5 PGS NF group exhibited superior cartilage regeneration, closely resembling hyaline cartilage. Histopathological evaluation revealed a columnar pattern of chondrocytes, along with an optimal concentration of proteoglycans and collagen in the extracellular matrix of the newly formed cartilage, indicating robust regeneration in both groups. Furthermore, the SEM and micro-CT analysis findings highlighted the exceptional quality of the repaired tissue in these groups. The release of GDF5 from SGnP and the expedient microenvironment provided by the NF scaffold augmented chondrogenic differentiation, resulting in superior cartilage tissue regeneration.