Mesenchymal stem cells (MSCs) are key regulators in senile osteoporosis and they are suitable candidates for stem cell mediated gene therapy in local and systemic bone disorders and tissue engineering. We hypothesized that genetically engineered MSCs, expressing rhBMP2, can be utilized for gene therapy targeted to bone regeneration and bone/cartilage tissue engineering. We conditionally expressed rhBMP2 in mouse and human mesenchymal stem cells. RhBMP2 expressing clones (tet-off), AAV-BMP2 and adeno-BMP2 spontaneously differentiated into osteogenic cells in vitro and in vivo. Clones were transplanted and tracked in vivo in radial segmental defects (regenerating site) and in ectopic muscular and subcutaneous sites (nonregenerating sites). In vitro and in vivo analysis revealed rhBMP2 expression and function, confirmed by PCR, RT-PCR, ELISA, Westerns, immunohistochemistry, and bioassays. Secretion of rhBMP2 in vitro was controlled by tetracycline (in the designated clone) and resulted in secretion of 1231 ng/24 h/10⁶ cells. Quantitative Micro QCT three-dimensional reconstruction revealed complete bone regeneration regulated by tetracycline in vivo, indicating the potential of this platform for bone and cartilage tissue engineering. Moreover, transplants of rhBMP2 expressing clones (tet-off) exhibited more than a 10-fold increase in angiogenesis, a crucial element in tissue engineering. We are currently characterizing a novel tissue engineering platform composed of engineered cells and scaffolds, creating 3D bone tissue in bioreactors, clearly indicating that our regulated clones and polymeric scaffolds can be utilized for tissue engineering. Our study should lead to the creation of gene therapies for systemic and local bone diseases in humans and bone/ cartilage tissue engineering.