Fetal mammals heal skin wounds through the second trimester of development without evidence of scar. We have investigated the role of bone morphogenetic protein 2 (BMP-2), which is a member of the TGF-beta superfamily, in normal skin development and fetal wound healing. We first used RNA in situ hybridization to demonstrate that BMP-2 was expressed at low levels in the developing hair follicles and in the epidermis of normal human fetal skin. We then created an in vivo model to test how exogenous BMP-2 would affect fetal skin development and wound healing. Fifty micrograms of BMP-2 was implanted into the subcutis of five 70-day-old fetal lambs through a full-thickness linear incision. The BMP-2 was placed beneath the right half of the wound, whereas the left half served as an untreated control. In two of the five animals 1 microgram of TGF-beta was placed into the same position in addition to the 50 micrograms of BMP-2. Twenty days later (90 days gestation, term = 140 days) all the fetal wounds were examined for evidence of cellular hyperproliferation and scar formation. BMP-2 induced massive dermal and epidermal growth when compared with controls. This finding was characterized by marked epidermal thickening and keratinization, a dramatic increase in the number of hair follicles, and more than 50 percent thickening of the dermis. The dermal thickening was the result of both increased cellularity and deposition of large irregular collagen bundles. Wounds treated with both BMP-2 and TGF-beta healed also with an adult-like pattern of scar formation. Surprisingly, the wounds with BMP-2 alone healed with an equal pattern of scar, indicating that there was not an additive effect of combining BMP-2 and TGF-beta. We conclude that BMP-2 is a pleomorphic growth factor that induces cellular growth, maturation, and fibroplasia in both the dermis and epidermis. Further analysis of this growth factor in both fetal and adult wound healing may lead to important discoveries regarding the control of scar formation and fibrosis in many adult tissues.