Loss of articular cartilage from ageing, injury or degenerative disease is commonly associated with inflammation, causing pain and accelerating degradation of the cartilage matrix. Sulphated glycosaminoglycans (GAGs) are involved in the regulation of immune responsesin vivo, and analogous polysaccharides are currently being evaluated for tissue engineering matrices to form a biomimetic environment promoting tissue growth while suppressing inflammatory and catabolic activities. Here, we characterise physical properties of sulphated alginate (S-Alg) gels for use in cartilage engineering scaffolds, and study their anti-inflammatory effects on encapsulated chondrocytes stimulated with IL-1β. Sulphation resulted in decreased storage modulus and increased swelling of alginate gels, whereas mixing highly sulphated alginate with unmodified alginate resulted in improved mechanical properties compared to gels from pure S-Alg. S-Alg gels showed extensive anti-inflammatory and anti-catabolic effects on encapsulated chondrocytes induced by IL-1β. Cytokine-stimulated gene expression of pro-inflammatory markers IL-6, IL-8, COX-2 and aggrecanase ADAMTS-5 were significantly lower in the sulphated gels compared to unmodified alginate gels. Moreover, sulphation of the microenvironment suppressed the protein expression of COX-2 and NF-κB as well as the activation of NF-κB and p38-MAPK. The sulphated alginate matrices were found to interact with IL-1β, and proposed to inhibit inflammatory induction by sequestering cytokines from their receptors. This study shows promising potential for sulphated alginates in biomimetic tissue engineering scaffolds, by reducing cytokine-mediated inflammation and providing a protective microenvironment for encapsulated cells.