Osteogenic differentiation of bone marrow stromal cells (BMSC) in a three-dimensional (3-D) scaffold has not been well studied. In this work, we studied expression of bone-related genes during differentiation of rabbit BMSCs in response to bone morphogenetic protein (BMP)-2 in both 2-D and 3-D culture systems. When BMSCs were cultured on films (2-D) of biodegradable poly(lactide-co-glycolide) (PLGA), increases in mRNA expression of type I collagen (Col I) and vascular endothelial growth factor (VEGF) became evident after 1 week. However, expression of both genes was only mildly stimulated by BMP-2. Expression of the osteopontin gene was highly stimulated by BMP-2 treatment. Expression of chordin, a BMP antagonist, increased significantly after 7 days. The increase was abrogated by BMP-2 treatment. BMP-2 was also able to stimulate mineralization of cultured BMSCs. After cells were switched to 3-D PLGA scaffolds for 24 h, expression of osteopontin and VEGF were markedly increased while expression of type I collagen and chordin remained unchanged. Expression of Col I did not increase with time in a 3-D culture as it did when cells were cultured on a 2-D film. We further explored the possibility of engineering bone tissue in vitro by seeding BMSCs into PLGA scaffolds. Cellular differentiation and bone formation in the scaffolds were analyzed histologically at 2 weeks and 2 months. Secretion of ECM by cells was evident at both 2-week and 2-month scaffolds, and was enhanced by rhBMP-2. Striking differences in 2-month scaffolds were observed between BMP-treated and untreated cells. A woven bone-like structure appeared in the scaffolds treated with BMP-2. The structure was verified to be bone-related by: (1) the presence of organized collagen fibrils; (2) the presence of mineral; and (3) morphological features of trabecular bone. Although collagen was abundant in the untreated 2-month scaffolds, it was disorganized. The untreated scaffolds also lacked mineral deposits, which were present in 2-D cultured cells even in the absence of BMP-2. Our results indicate that the requirement of osteo-inductive agents, such as BMP-2, is essential for bone tissue engineering.