The osteoinductive capacity of demineralized bone matrix (DBM) has led to wide use of this material for surgical reconstruction. Preparation of DBM often includes sterilization with ethylene oxide, disinfection with various chemical agents, or irradiation. Exposure to hydrogen peroxide (H2O2) is used for both sterilization and bleaching of bone, the latter primarily for cosmetic reasons. We investigated the effect of H2O2, on the osteoinductive capacity of DBM. Cortical bone implants prepared from rat femurs were placed into 3% H2O2 solution. Control specimens were not exposed to H2O2. Bones were then lipid-extracted, demineralized, sterilized with ethylene oxide, and freeze-dried in an identical manner. Allografts were implanted into rat hosts for 1 to 3 weeks. Osteoinduction proceeded rapidly in implants not exposed to H2O2, with chondrocytes and new bone appearing in the implant. After 3 weeks, perforations in the implant were largely replaced with new bone. In contrast, osteoinduction did not occur in implants treated with H2O2. Perforations in H2O2-treated implants were filled with vascularized fibrous tissue, but no cartilage or bone. These findings reveal that H2O2 used for disinfection or bleaching of DBM can abolish its osteoinductive capacity in rats.