Bone morphogenetic proteins (BMPs) possess osteoinductive activities and are useful for clinical treatments, including bone regeneration. We found that transforming growth factor (TGF)-β1 strongly enhances the osteoinductive activity of BMP-2. Collagen sponges containing 5 μg of BMP-2 were implanted into mouse muscle tissues, after which lump-like masses appeared and grew until day 7. Subsequently, calcification occurred in the lump-like masses by day 14. Addition of 50 ng of TGF-β1 to the BMP-2-containing sponges markedly accelerated the growth of the lump-like masses and resulted in a fivefold increase in total bone volume as compared with BMP-2 alone. The number of osteoblasts in ectopic bone tissues at 14 days after implantation induced by BMP-2+TGF-β1 was twofold greater than that with BMP-2 alone, whereas the number of osteoclasts was decreased by half. On the other hand, TGF-β1 accelerated the differentiation of both osteoblasts and osteoclasts in the early stage (2-7 days after implantation) of ectopic bone formation. We also implanted collagen sponges into bone defects surgically created in mouse calvaria. Sponges containing 2.5 μg of BMP-2 and 25 ng of TGF-β1 caused complete filling of the defects with orthotopic bone, whereas those containing 2.5 μg of BMP-2 alone caused only partial filling. These results suggest that TGF-β1 enhances BMP-2-induced ectopic bone formation by accelerating the growth of lump-like masses, and regulates osteoblast and osteoclast generation. Our findings may contribute to the development of a new treatment method for skeletal disorders.