Stimuli-responsive polymeric systems have been widely used for various drug delivery and tissue engineering applications. Magnetic stimulation can be also exploited to regulate the release of pharmaceutical drugs, growth factors, and cells from hydrogels in a controlled manner, on-demand. In the present study, alginate ferrogels containing iron oxide nanoparticles were fabricated via ionic cross-linking, and their various characteristics were investigated. The deformation of the ferrogels was dependent on the polymer concentration, calcium concentration, iron oxide concentration, and strength of magnetic field. To modulate the release of transforming growth factor beta 1 (TGF-β1) under magnetic stimulation, alginate was chemically modified with heparin, as TGF-β1 has a heparin-binding domain. Alginate was first modified with ethylenediamine, and heparin was then conjugated to the ethylenediamine-modified alginate via carbodiimide chemistry. Conjugation of heparin to alginate was confirmed by infrared spectroscopy and proton nuclear magnetic resonance spectroscopy. Sustained release of TGF-β1 from alginate-g-heparin ferrogels was achieved, and application of a magnetic field to the ferrogels regulated TGF-β1 release, resultantly enhancing chondrogenic differentiation of ATDC5 cells, which were used as a model chondrogenic cell line. Alginate-based ferrogels that release drugs in a controlled manner may therefore be useful in many biomedical applications.