The aim of this study was to examine the potential of immunoselected genetically modified human osteoprogenitors to form bone in vivo on porous PLA scaffolds. Human osteoprogenitors from bone marrow were selected using the antibody STRO-1 utilising a magnetically activated cell separation system. The STRO-1(+) fraction isolated 7% of nucleated marrow cells and increased fibroblastic colony formation by 300% and alkaline phosphatase activity by 190% over unselected marrow cell cultures. To engineer bone tissue, STRO-1(+) culture-expanded cells were transduced with AxCAOBMP-2, an adenovirus carrying the human BMP-2 gene, injected into diffusion chambers containing porous PLA scaffolds, and implanted in vivo. After 11 weeks the presence of bone mineral was observed by X-ray analysis and confirmed for mineral by von Kossa, as well as bone matrix composition by Sirius red staining, birefringence, and type I collagen immunohistochemistry. Bone formation in vivo indicates the potential of using immunoselected progenitor cells and ex vivo gene transfer with biodegradable scaffolds, for the development of protocols for the treatment of a wide variety of musculo-skeletal disorders.