Biodegradable gelatin hydrogels incorporating basic fibroblast growth factor (bFGF) were evaluated for their efficacy in bone regeneration using a rabbit model. Hydrogels with water contents of 85% and 98% were prepared using chemical crosslinking of gelatin with an isoelectric point of 4.9 in aqueous solution and, after freeze drying, were impregnated with an aqueous solution of bFGF to obtain bFGF-incorporated gelatin hydrogels. When they were implanted into bone defects measuring 6 mm in diameter in rabbit skulls (six animals/group), complete closure of the defect was observed at 12 weeks after implantation, regardless of the water content of the hydrogels. In contrast, bFGF did not enhance bone regeneration when applied to the skull defect in solution with phosphate-buffered saline (PBS). Also, gelatin hydrogels lacking bFGF were not effective in inducing bone formation, with fibrous tissue growing into the defect instead, similar to the skull defect seen in control rabbits treated with PBS. This indicates that the presence of hydrogels did not interfere with bone regeneration at the skull defect, probably because of their disappearance during biodegradation. It is concluded that the gelatin hydrogel is a promising matrix for effective induction of biological activity of bFGF for bone regeneration in skull and sinus defects.