In an attempt to reduce complications in cases of severe open fracture, we developed a bio-artificial periosteum composed of osteogenic cells and collagen sponge. In the present study, we evaluated the osteogenic potential of the bio-artificial periosteum in vivo and in vitro. After 4-week incubation in vitro, the bio-artificial periosteum had high alkaline phosphatase activity and osteocalcin content. Moreover, energy dispersive X-ray analysis revealed numerous crystal structures consisting of P and Ca on the surface of the bio-artificial periosteum. Using a rat model for severe bone injury, we examined the bone formation process in defect sites covered with the bio-artificial periosteum. New bone formation occurred in the central part of the bone defect as well as at the bone edge. We conclude that by using the bio-artificial periosteum, the fracture site benefited from an improved osteogenic environment. These results indicate that a clinical trial to further evaluate this technique should be conducted.