Thiolated chitosan (Thio-CS) is a well-established pharmaceutical excipient for drug delivery. However, its use as a scaffold for bone formation has not been investigated. The aim of this study was to evaluate the potential of Thio-CS in bone morphogenetic protein-2 (BMP-2) delivery and bone formation. In vitro study showed that BMP-2 interacted with the Thio-CS and did not affect the swelling behavior. The release kinetics of BMP-2 from the Thio-CS was slightly delayed (70%) within 7 days compared with that from collagen gel (Col-gel, 85%), which is widely used in BMP-2 delivery. The BMP-2 released from Thio-CS increased osteoblastic cell differentiation but did not show any cytotoxicity until 21 days. Analysis of the in vivo ectopic bone formation at 4 weeks of posttransplantation showed that use of Thio-CS for BMP-2 delivery induced more bone formation to a greater extent (1.8 fold) than that of Col-gel. However, bone mineral density in both bones was equivalent, regardless of Thio-CS or Col-gel carrier. Taken together, Thio-CS system might be useful for delivering osteogenic protein BMP-2 and present a promising bone regeneration strategy.