Scaffold architecture, surface topography, biochemical and mechanical cues have been shown to significantly improve cellular events and in vivo tissue regeneration. Specifically electrospun nanofiber matrices have gained tremendous interest due to their intrinsic structural resemblance to native tissue extracellular matrix (ECM). The present study reports on the electrospun nanofiber matrices of polycaprolactone (PCL)-chitosan (CS) blends and effect of type I collagen surface functionalization in regulating rat bone marrow derived stromal cells (rBMSCs) differentiation into osteogenic lineage. Collagen was covalently attached to blend nanofibers via carbodiimide (EDC) coupling. Bead-free smooth nanofibers (diameter-700-850 nm) obtained at the optimized conditions of polymer concentration and electrospinning parameters were used for the study. EDC collagen coupling resulted in 0.120+/-0.016 micro g of collagen immobilization onto a 1 cm2 area of the PCL/CS nanofibers, which was 2.6-folds higher than the amount of collagen that can be retained by physical adsorption. Significantly improved rBMSCs adhesion, spreading, proliferation and osteogenic differentiation was observed on the collagen functionalized COL-PCULCS nanofiber matrices as compared to control groups. Osteogenic phenotypic markers such as alkaline phosphatase (ALP) activity and mineralization were found to be significantly higher on COL-PCL/CS nanofiber matrices as compared to controls. Elevated gene expression profiles of osteogenic markers such as osteocalcin (0CN), osteopontin (OPN) and ALP further corroborate the osteoinductive nature of the collagen functionalized PCL/CS nanofiber matrices. These fiber matrices and modification techniques could be extended to other scaffold systems for tissue engineering applications.