The ability to continuously deliver osteoinductive proteins to a specific anatomic site would facilitate the treatment of fracture nonunions and other clinical problems associated with bone loss. We have developed a murine model of regional gene therapy. A bone-marrow stromal cell line infected with an adenovirus expressing recombinant bone morphogenetic protein-2 cDNA secreted biologically active bone morphogenetic protein-2. These bone morphogenetic protein-2-producing cells were able to induce abundant heterotopic bone formation when implanted into the quadriceps muscle of severe combined immune deficient mice and also successfully healed large segmental femoral defects in nude rats. These studies demonstrate that regional gene therapy with continuous delivery of osteoinductive factors to a specific anatomic site can enhance the formation and repair of bone.