The aim of the present study was to evaluate the in vivo biocompatibility of injectable thermo gelling chitosan-ammonium hydrogen phosphate solution (chitosan-AHP) and its efficacy to deliver recombinant human bone morphogenetic protein-2 (rhBMP-2) in a bioactive form. The thermogel showed a typical foreign body response upon subcutaneous implantation surrounded by a fibrous capsule. Even at 4 and 8 weeks post implantation, significant neutrophil infiltration was observed within the gel. Chitosan-AHP gel retained most of the loaded rhBMP-2 after a small initial release. The bioactivity of the released protein was demonstrated in vitro by the increase in alkaline phosphatase activity of mouse pre osteoblast cells (MC3T3-E1). Histological and micro-computed tomography (μCT) evaluation showed evidence of ectopic bone formation upon 4 μg/mL rhBMP-2 loaded chitosan-AHP injection. The study demonstrated a neutrophil mediated local tissue response to chitosan-AHP gel and its ability to encapsulate and maintain the bioactivity of rhBMP-2.