Posterolateral lumbar spine arthrodesis is a commonly performed procedure, yet the biology of healing is poorly understood. Nonunion, or failure to achieve a solid bony fusion, occurs in up to 40% of patients. We first developed and validated a rabbit model to characterize the healing process by measuring macroscopic parameters, microscopic parameters, and gene expression. We found that presently available osteoconductive and weakly osteoinductive materials were insufficient to replace autografts, but could in some cases serve as bone graft extenders. In contrast, two osteoinductive growth factors currently in development could replace autograft in non-human primates and in humans, but may be limited by the high dose required, carrier variability, and high cost. We identified, cloned, and sequenced a novel complementary DNA (cDNA) encoding for an intracellular protein LMP-1, which is expressed during the first few hours of osteoblast differentiation. LMP-1 expression is able to induce many BMPs, their receptors, and other bone growth factors. Local implantation of bone marrow cells transfected with LMP-1 cDNA induced spine fusion in 100% of sites tested; no bone formed at the control sites without LMP-1. This strategy of local gene therapy may provide a basis for the next generation of bone graft substitutes.