Bone is capable of regeneration, and defects often heal spontaneously. However, cartilage, tendon, and ligament injuries usually result in replacement if the site by organized scar tissue, which is inferior to the native tissue. The osteogenic potential of mesenchymal stem cells (MSCs) has already been verified. MSCs hold great potential for the development of new treatment strategies for a host of orthopedic conditions. The multi-lineage potential and plasticity of MSCs allow them to be building blocks for a host of nonhematopoietic tissues, including bone. More recently, several groups have reported on the successful clinical application of tissue engineering strategies in the repair of bony defects in patients secondary to trauma and tumor resection. Advances in fabrication of biodegradable scaffolds that serve as beds for MSC implantation will hopefully lead to better biocompatibility and host tissue integration. Current strategies for bone tissue engineering include the use of osteoconductive matrix devices that promote bony ingrowth, and the delivery of osteoinductive growth factors, including bone morphogenetic protein (BMP) family, BMP-2 and BMP-7, to bony defect sites. Minimal toxicity has been observed in animal models involving genetically-manipulated stem cells transduced with retroviral and adenoviral vectors. Gene therapy using stem cells as delivery vehicles is a powerful weapon that can be used in a plethora of clinical situations that would benefit from the osteoinductive, proliferative, and angiogenic effects of growth factors. With better understanding of the biology of stem cells in the future and with enhancement of technologies that are capable to influence, modify, and culture these cells, a new field of regenerative skeletal medicine may emerge.