Stimulation of bone healing through local application of growth factors from implants may improve the clinical outcome in fracture treatments. However, the growth factors in reconstructive application require supraphysiologic dosing and considerable expense while hampering their clinical application. Genetic modification of mesenchymal stem cells (MSCs) to both produce and respond to osteogenic factors may have potential for use in enhancing bone healing. In this study, MSCs were genetically modified by a recombinant adenoviral containing the gene for human bone morphogenetic protein 2 (hBMP-2). The gene-transduced cells were incorporated with a porous beta-tricalcium phosphate (TCP) as a novel complex. We investigated osteogeneic potential of gene-transduced MSCs/ceramic and the ability of the complex on facilitating bone formation in a radius segmental defect of rabbits. In vitro results showed that there were apparent hBMP2 gene expression and protein synthesis in MSCs with hBMP2 stably transfection, whereas negative expression of hBMP2 in controls. Histological studies demonstrated that gene-transfected MSCs/ceramic composite appeared an ability of heterotopic osteogenesis. In the segmental bone defects, endochondrial ossification at fracture sites was found in both transfected and untransfected MSCs-ceramic composites. While the composite with hBMP2 transfection showed the earliest and the most effective healing of the segmental bone defects both radiographically and morphologically. Our results show that genetically modified MSCs/ceramics had enhanced osteogeneic capacity relative to unmodified MSCs or only ceramic implants. This study suggests that use of cell-and gene-activated bioceramics may offer promise for molecular design of implants to induce osteogenesis and enhance bone regeneration.