Mechanical compression of the cartilage extracellular matrix has a significant effect on the metabolic activity of the chondrocytes. However, the relationship between the stress–strain and fluid-flow fields at the macroscopic “tissue” level and those at the microscopic “cellular” level are not fully understood. Based on the existing experimental data on the deformation behavior and biomechanical properties of articular cartilage and chondrocytes, a multi-scale biphasic finite element model was developed of the chondrocyte as a spheroidal inclusion embedded within the extracellular matrix of a cartilage explant. The mechanical environment at the cellular level was found to be time-varying and inhomogeneous, and the large difference (∼3 orders of magnitude) in the elastic properties of the chondrocyte and those of the extracellular matrix results in stress concentrations at the cell–matrix border and a nearly two-fold increase in strain and dilatation (volume change) at the cellular level, as compared to the macroscopic level. The presence of a narrow “pericellular matrix” with different properties than that of the chondrocyte or extracellular matrix significantly altered the principal stress and strain magnitudes within the chondrocyte, suggesting a functional biomechanical role for the pericellular matrix. These findings suggest that even under simple compressive loading conditions, chondrocytes are subjected to a complex local mechanical environment consisting of tension, compression, shear, and fluid pressure. Knowledge of the local stress and strain fields in the extracellular matrix is an important step in the interpretation of studies of mechanical signal transduction in cartilage explant culture models.