In extensive bone defects, tissue damage and hypoxia lead to cell death, resulting in slow and incomplete healing. Human embryonic stem cells (hESC) can give rise to all specialized lineages found in healthy bone and are therefore uniquely suited to aid regeneration of damaged bone. We show that the cultivation of hESC-derived mesenchymal progenitors on 3D osteoconductive scaffolds in bioreactors with medium perfusion leads to the formation of large and compact bone constructs. Notably, the implantation of engineered bone in immunodeficient mice for 8 wk resulted in the maintenance and maturation of bone matrix, without the formation of teratomas that is consistently observed when undifferentiated hESCs are implanted, alone or in bone scaffolds. Our study provides a proof of principle that tissue-engineering protocols can be successfully applied to hESC progenitors to grow bone grafts for use in basic and translational studies.