The osteoinductivity of demineralized bone matrix (DBM) becomes significantly reduced if the specimens are further delipidated with chloroform-methanol. The addition of phosphatidylcholine (PC), a major constituent of the lipid fraction present in the calcification front during normal bone formation, can restore the biological activity. Active endochondral bone formation is observed in the DBM/PC implants placed in the anterior abdominal wall musculature or subcutaneously for 28 days. When PC is added to generate a putty containing 60% PC and 40% DBM, biochemical parameters associated with osteoinductivity are significantly enhanced. Biological responses evaluated histologically and by determination of alkaline phosphatase activity are in very good agreement. The DBM/PC putty has good handling properties, can be molded into different shapes, and does not wash away from the application site. An advantage of adding PC is that it not only enhances the handling properties, but also boosts the osteoinductivity of the preparation.