Periosteum has been demonstrated to contain mesenchymal progenitor cells differentiating to osteoblasts, and both bone morphogenetic protein-2 (BMP-2) and vascular endothelial growth factor (VEGF) may play important roles in cell-based approaches to bone regeneration. The purpose of this study was to evaluate the feasibility and efficacy of BMP-2 and/or VEGF on periosteal cell differentiation to osteoblasts in vitro and ectopic bone formation in vivo. Human periosteum-derived cells were transfected with BMP-2, VEGF, BMP-2 + VEGF, or vehicle as a control by non-viral gene transfer and then cultured and implanted to nude mice intramuscularly. Real-time polymerase chain reaction analysis of the culture revealed that transgenes for BMP-2 and BMP-2 + VEGF induced more mRNA expression of alkaline phosphatase, collagen type I, and osteocalcin than VEGF and vehicle treatments; additionally, alizarin red S staining, alkaline phosphatase staining, and alkaline phosphatase activity were significantly higher in the BMP-2 + VEGF transgene than in the other versions. After implantation, ectopic bone was observed at 4 weeks and greatly increased at 8 weeks in all groups. In particular, the combination of BMP-2 and VEGF formed significantly more bone at 4 weeks, and VEGF transfection resulted in more blood vessels relative to the conditions without VEGF. Thus, VEGF might enhance BMP2-induced bone formation through modulation of angiogenesis.