Human embryonic stem cell (hESC) derived mesenchymal stem cells (EMSC) are efficacious in treating a series of autoimmune, inflammatory, and degenerative diseases in animal models. However, all the EMSC derivation methods reported so far rely on two-dimensional (2D) culture systems, which are inefficient, costive and difficult for large-scale production. HESC, as an unlimited source, can be successively propagated in spheroids. Here, we demonstrate that hESC spheroids can directly differentiate into MSC spheroids (EMSCsp) within 20 days in one vessel without passaging and the system is scalable to any desired size. EMSCsp can further differentiate into osteocytes and chondrocytes in spheres or demineralized bone matrix. EMSCsp also retains immune-modulatory effects in vitro and therapeutic effects on two mouse models of colitis after dissociation. Compared to EMSC differentiated in monolayer, EMSCsp-derived cells have faster proliferation and higher yield and develop less apoptosis and slower senescence. Thus, the 3D differentiation system allows simple, cost-effective, and scalable production of high-quality EMSC and subsequently bone and cartilage tissues for therapeutic application.