We developed a bone substitute consisting of 3-dimensional poly-(D, L-lactide-co-glycolide) and hydroxyapatite scaffolds coated with type I collagen (PLGA/HA/collagen). Recombinant human bone morphogenetic protein-2 (rhBMP-2), which stimulated bone regeneration, was immobilized on this scaffold to deliver growth factor. Osteoinduction and osteogenesis were assessed with MG-63 human osteoblast-like cells in vitro and in animals in vivo. At 7 days, seeded MG-63 cells were equally distributed throughout the surface, with cellular pseudopodia attachments. The composite showed high cellular activity with osteoblastic proliferation and a dense, bonelike layer. Assay with 3-(4, 5-dimethylthiazol-2-yl)-2,5-diphenyltetrazolium bromide showed significant cellular proliferation and viability. Alkaline phosphatase assay showed significantly enhanced osteogenic differentiation. In vivo, the filling material showed evidence of resorption and new bone formation. The bone void was completely replaced by bone ingrowths at 12 weeks. The osteoconductive PLGA/HA scaffold with the bioactive collagen coating and rhBMP-2 tethering stimulated osteoinduction and osteogenesis. Immobilization of rhBMP-2 on the scaffold provided a multifunctional and biomimetic delivery vehicle for growth factor to enhance cell adherence, proliferation, and differentiation. This novel composite scaffold induced osteoinduction and osteogenesis may be useful as a synthetic substitute for bone regeneration and for future orthopaedic tissue engineering.