Subcutaneous implantation of demineralized diaphyseal bone matrix in allogeneic rats results in the local induction of endochondral bone differentiation. We have explored the potential of three dissociative extractants, 4 M guanidine hydrochloride (Gdn . HCl), 8 M urea/1 M NaCl, and 1% NaDodSO4 at pH 7.4, containing protease inhibitors to solubilize putative inductive molecules in the bone matrix. Extraction of bone matrix with any one of these extracts resulted in the loss of the bone inductive property. The solubilized extracts were then reconstituted with the residue by dialysis against water. The various reconstituted matrices were bioassayed for bone inductive potential by quantitation of alkaline phosphatase activity and 45Ca incorporation on day 12 after implantation. There was complete recovery of biological activity after reconstitution of the residues with each of the three extracts. Polyacrylamide gel electrophoresis of the extracts revealed similar protein profiles. Gel filtration of the 4 M Gdn. HCl extract on Sepharose CL-4B showed a heterogeneous broad peak. When fractions of that peak containing proteins less than 50,000 daltons were reconstituted with inactive 4 M Gdn . HCl-treated bone matrix and then implanted, new bone was induced. These observations demonstrate the dissociative extraction and successful biological reconstitution of bone inductive macromolecules in demineralized bone matrix.