We have reported that recombinant biglycan (BGN) core protein accelerates bone formation in vivo by enhancing bone morphogenetic protein (BMP)-2 function. The purpose of the present study was to identify the specific domain ("effector") within the BGN core protein that facilitates BMP-2 osteogenic function. Thus, we generated various recombinant and synthetic peptides corresponding to several domains of BGN, and tested their effects on BMP-2 functions in vitro. The results demonstrated that the leucine-rich repeats 2-3 domain (LRR2-3) of BGN significantly enhanced the BMP-2 induced Smad1/5/9 phosphorylation, osteogenic gene expression, and alkaline phosphatase activity in myogenic C2C12 cells. Furthermore, addition of LRR2-3 to osteoblastic MC3T3-E1 cells accelerated in vitro mineralization without compromising the quality of the mineral and matrix. These data indicate that LRR2-3 is, at least in part, responsible for BGN's ability to enhance BMP-2 osteogenic function, and it could be useful for bone tissue regeneration.