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Abstract This study compared cartilage regeneration outcomes in knee osteoarthritis (OA) using allogeneic human umbilical cord blood-derived mesenchymal stem cell (hUCB-MSC) implantation and microdrilling with high tibial osteotomy (HTO). Fifty-four patients (60 knees) were included: 24 (27 knees) in the hUCB-MSC group and 30 (33 knees) in the microdrilling group. Both groups showed significant improvements in pain and functional scores at 6, 12, and 24 months compared to baseline. At 24 months, the hUCB-MSC group had significantly improved scores. Arthroscopic assessment at 12 months revealed better cartilage healing in the hUCB-MSC group. In subgroup analysis according to the defect site, hUCB-MSC implantation showed superior cartilage healing for anterior lesions. In conclusion, both treatments demonstrated effectiveness for medial OA. However, hUCB-MSC implantation had better patient-reported outcomes and cartilage regeneration than microdrilling. The study suggests promising approaches for cartilage restoration in large knee defects due to OA.