The generation of three-dimensional tissue substitutes in vitro requires the development of new culture strategies, including bioreactor concepts. The present study designs and validates a perfusion bioreactor to facilitate skeletal tissue engineering. The perfusion bioreactor has four main components: a culture chamber, a circulation unit, which consists of a peristaltic pump and silicon tubes, a mechanical device, and sensors. Analysis of flow behavior within the bioreactor was performed using computational fluid dynamics (CFD). Flow distribution was determined using dye tracer experiments to visualize the mixture effects with and without alginate hydrogel. Bovine chondrocytes were isolated from nasal septum, seeded into alginate hydrogel, and cultured dynamically in the perfusion bioreactor. 7-^m sections of bouin-fixed and paraffin-embedded alginate/chondrocyte constructs were prepared. The sections were stained histochemically for cell and tissue morphology assessments. Results of CFD indicate a very low wall shear stress on the surface of the culture chamber at a flow rate of 0.5 mL/min. The peak velocity and maximum wall shear stress were 8.816 x 10"4 m/s and 0.001237 dyne/cm2, respectively. Under a steady flow of 0.5 mL/min, nearly all of the dye was distributed through the alginate gel. An average mixing time of 5-7 min was obtained with the perfusion bioreactor setup. After 12 days of chondrocyte culture in alginate, all chondrocytes were clearly surrounded with a stained matrix. The matrix volume surrounding each cell increased with time. In the matrix, fairly large round cells rich in cytoplasm were scattered individually or as an isogenous group at two weeks. Chondrocytes were housed in lacuna-like structures. The dissolved oxygen and pH of the culture medium were approximately constant at biological levels. The developed perfusion bioreactor is demonstrated to mimic various environmental conditions found in vivo for cartilage tissue engineering.