A novel synthetic peptide corresponding to BMP-2 residues 73-92 that can induce bone formation and can form a conjugate with a carrier to localize its effect has been reported previously. The synthetic peptide was bound to a BMP-2-specific receptor, and it elevated both the alkaline phosphatase activity and the osteocalcin mRNA in the murine multipotent mesenchymal cell line, C3H10T1/2. The 73-92 peptide also induced ectopic bone formation when conjugated to a covalently crosslinked alginate gel and implanted into a rat's calf muscle. Here, it is reported that the 73-92 peptide-conjugated alginate gel particles significantly promoted the repair of rat tibial bone defects, whereas the alginate gel sponge that the peptide was conjugated with was less effective. Further acceleration and denser bone regeneration was achieved when the 73-92 peptide-conjugated alginate gel particles were coimplanted with syngeneic rat bone-marrow stromal cells. Therefore, the 73-92 peptide can induce differentiation of osteoblast precursor cells into osteoblasts, and can activate osteoblasts to promote the repair of bone defects.