Regenerative medicine requires innovative therapeutic designs to accommodate high morphogen concentrations in local depots, provide their sustained presence, and enhance cellular invasion and directed differentiation. Here we present an example for inducing local bone regeneration with a matrix-bound engineered active fragment of human parathyroid hormone (PTH(1-34)), linked to a transglutaminase substrate for binding to fibrin as a delivery and cell-invasion matrix with an intervening plasmin-sensitive link (TGplPTH(1-34)). The precursor form displays very little activity and signaling to osteoblasts, whereas the plasmin cleavage product, as it would be induced under the enzymatic influence of cells remodeling the matrix, was highly active. In vivo animal bone-defect experiments showed dose-dependent bone formation using the PTH-fibrin matrix, with evidence of both osteoconductive and osteoinductive bone-healing mechanisms. Results showed that this PTH-derivatized matrix may have potential utility in humans as a replacement for bone grafts or to repair bone defects.