It will be blinded, so volunteer patients won't know which injection they will receive.
The study is being funded by the National Health and Medical Research Council and will be one of the world's largest clinical trials to use stem cells for osteoarthritis.
Trial participants will receive an off-the-shelf product manufactured by an Australian company called Cynata Therapeutics.
Most experimental interventions use stem cells extracted from a patient's own fat tissue.
The new trial therapy uses stem cells from the blood of a single healthy donor, which is then expanded and reproduced to commercial scale.
"Every patient (in the treatment group) is going to receive the same thing, taking one of the uncertainties out of the picture," Professor Megan Munsie, deputy director of Melbourne University's Centre for Stem Cell Systems, said.