The role that transduced mouse bone marrow stromal cells (mBMSCs) engineered to overexpress human bone morphogenetic protein 2 (BMP-2) play in healing critical-sized skeletal defects is largely unknown. We evaluated the interaction between host osteoprogenitor cells and donor mBMSCs transduced with either a lentiviral (LV) vector-expressing red fluorescent protein (RFP) with or without BMP-2 that were implanted into a critical-sized femoral defect. Radiographs taken at the time of killing were evaluated using a five-point scaled scoring system. Frozen histologic sections were analyzed to assess both the transduced cells' role in bone repair and the local osteoprogenitor response. There was complete radiographic bridging in 94% of group I (LV-RFPch-BMP-2-cmyc) and 100% of group III (recombinant human BMP-2) specimens. Radiographs demonstrated a lack of healing in group II (LV-RFPch). Mouse BMSCs transduced with an LV-RFPch-BMP-2 vector were able to induce host cells to differentiate down an osteoblastic lineage and heal a critical-sized defect. However, the donor cells appeared to be functioning as a delivery vehicle of BMP-2 rather than actually differentiating into osteoblasts capable of participating in bone repair as evidenced by a lack of colocalization of the transduced cells to the sites of skeletal repair where the host progenitor cells were found.