Osteoarthritis (OA) is a joint disorder characterized by the progressive degeneration of articular cartilage. The phenotype and metabolism behavior of chondrocytes plays crucial roles in maintaining articular cartilage function. Chondrocytes dedifferentiate and lose their cartilage phenotype after successive subcultures or inflammation and synthesize collagen I and X (COL I and COL X). Farnesol, a sesquiterpene compound, has an anti-inflammatory effect and promotes collagen synthesis. However, its potent restoration effects on differentiated chondrocytes have seldom been evaluated. The presented study investigated farnesol’s effect on phenotype restoration by examining collagen and glycosaminoglycan (GAG) synthesis from dedifferentiated chondrocytes. The results indicated that chondrocytes gradually dedifferentiated through cellular morphology change, reduced expressions of COL II and SOX9, increased the expression of COL X and diminished GAG synthesis during four passages of subcultures. Pure farnesol and hyaluronan-encapsulated farnesol nanoparticles promote COL II synthesis. GAG synthesis significantly increased 2.5-fold after a farnesol treatment of dedifferentiated chondrocytes, indicating the restoration of chondrocyte functions. In addition, farnesol drastically increased the synthesis of COL II (2.5-fold) and GAG (15-fold) on interleukin-1β-induced dedifferentiated chondrocytes. A significant reduction of COL I, COL X and proinflammatory cytokine prostaglandin E2 was observed. In summary, farnesol may serve as a therapeutic agent in OA treatment.