The purpose of the study was to assess the incorporation of defatted, and deproteinated bovine cancellous bone in a sheep bone graft model. Cylindrical defects were created in the femoral condyles of 12 sheep using custom-made trephines. The defect was filled with a cylinder of prepared bovine bone. The removed cylinder of bone was implanted into a defect created in the opposite femoral condlyle. Fluorochrome bone labels were administered over an 8-week period and the sheep sacrificed at 10 weeks. Undecalcified thin bone sections were viewed with a fluorescent microscope. ln one sheep there was a technical problem leading to unsatisfactory histology. All other sheep showed similar histology. The autograft incorporated rapidly with the graft showing a rim of reactive bone and the graft itself showing rapid laying down of new bone on its surface. The xenograft showed a similar reactive rim of new bone with deposition of new bone throughout the graft and resorption of the graft material. This study demonstrates that specially prepared bovine cancellous bone can act as a scaffold for the depostion of new bone in a sheep model. The role of this material in humans is to be evaluated.