Human marrow-derived mesenchymal progenitor cells (hMPCs), which have the capacity for osteogenic and marrow stromal differentiation, were transduced with the myeloproliferative sarcoma virus (MPSV)-based retrovirus, vM5LacZ, that contains the LacZ and neo genes. Stable transduction and gene expression occurred in 18% of cells. After culture expansion and selection in G418, approximately 70% of neo(r) hMPCs co-expressed LacZ. G418-selected hMPC retain their osteogenic potential and form bone in vivo when seeded into porous calcium phosphate ceramic cubes implanted subcutaneously into SCID mice. LacZ expression was evident within osteoblasts and osteocytes in bone developing within the ceramics 6 and 9 weeks after implantation. Likewise, hMPCs transduced with human interleukin-3 (hIL-3) cDNA, adhered to ceramic cubes and implanted into SCID mice, formed bone and secreted detectable levels of hIL-3 into the systemic circulation for at least 12 weeks. These data indicate that genetically transduced, culture-expanded bone marrow-derived hMPCs retain a precursor phenotype and maintain similar levels of transgene expression during osteogenic lineage commitment and differentiation in vivo. Because MPCs have been shown to differentiate into bone, cartilage, and tendon, these cells may be a useful target for gene therapy.