When porous calcium phosphate ceramic is combined with marrow cells and grafted either heterotopically or orthotopically, bone forms inside the pores on the surface of the ceramic beginning at three weeks after implantation. The question remains as to whether the newly formed bone is derived from host or donor cells. To study the origin of bone cells formed in these composite grafts of marrow cells and ceramic, quail marrow cells from long bones were introduced into ceramics and the composites were implanted into subcutaneous pouches of immunologically nonreactive athymic nude mice. The ceramics were recovered at two to 84 days following surgery, fixed, decalcified, embedded, sectioned, and examined for the location of a quail-specific nucleolar marker and the binding of a specific antiserum against quail cells. Our observations indicate that ceramic-associated osteogenesis is a biphasic phenomenon: an early phase, the first three to four weeks after implantation, in which donor cells are largely responsible for the observed osteogenesis, and a second phase, eight to 12 weeks postsurgery, in which host cell actions predominate. During the second stage, the ceramic pores begin to show the formation of marrow of host origin, and the mesenchymal marrow component appears to be osteogenic because the bone formed during this late postgrafting stage contains osteocytes of host and donor origin. The second phase therefore results in chimeric bone composed of quail and mouse. These studies clearly document the donor origin of the initial bone formation and indicate that marrow contains progenitor cells capable of forming de novo bone.