The objective of this study is to develop an osteoinductive scaffold which enables the controlled release of bone morphogenetic protein (BMP)-2. A biodegradable gelatin sponge incorporating 50 wt% of b-tricalcium phosphate (β-TCP) was fabricated to investigate the osteoinduction activity. The sponge prepared had an interconnected pore structure with an average pore size of 200 mm. The in vivo release test revealed that BMP-2 was released from the sponge for a time period longer than 28 days. Combination of the sponge capable for BMP-2 release and autologous bone marrow cells significantly induced bone regeneration at a segmental defect of rabbit ulnae. It is concluded that the gelatin sponge for BMP-2 release is a promising cell scaffold for osteoinduction in vivo.