A biodegradable microsphere/scaffold composite based on the synthetic polymer poly(propylene fumarate) (PPF) holds promise as a scaffold for cell growth and sustained delivery vehicle for growth factors for bone regeneration. The objective of the current work was to investigate the in vitro release and in vivo bone forming capacity of this microsphere/scaffold composite containing bone morphogenetic protein-2 (BMP-2) in combination with autologous bone marrow stromal cells (BMSCs) in a goat ectopic implantation model. Three composites consisting of 0, 0.08, or 8 microg BMP-2 per mg of poly(lactic-co-glycolic acid) microspheres, embedded in a porous PPF scaffold, were combined with either plasma (no cells) or culture-expanded BMSCs. PPF scaffolds impregnated with a BMP-2 solution and combined with BMSCs as well as empty PPF scaffolds were also tested. The eight different composites were implanted subcutaneously in the dorsal thoracolumbar area of goats. Incorporation of BMP-2-loaded microspheres in the PPF scaffold resulted in a more sustained in vitro release with a lower burst phase, as compared to BMP-2-impregnated scaffolds. Histological analysis after 9 weeks of implantation showed bone formation in the pores of 11/16 composites containing 8 microg/mg BMP-2-loaded microspheres with no significant difference between composites with or without BMSCs (6/8 and 5/8, respectively). Bone formation was also observed in 1/8 of the BMP-2-impregnated scaffolds. No bone formation was observed in the other conditions. Overall, this study shows the feasibility of bone induction by BMP-2 release from microspheres/scaffold composites.