Background: Bone grafts are required to repair large bone defects after tumour resection or large trauma. The availability of patients' own bone tissue that can be used for these procedures is limited. Thus far bone tissue engineering has not lead to an implant which could be used as alternative in bone replacement surgery. This is mainly due to problems of vascularisation of the implanted tissues leading to core necrosis and implant failure. Recently it was discovered that embryonic stem cells can form bone via the endochondral pathway, thereby turning in-vitro created cartilage into bone in-vivo. In this study we investigated the potential of human adult mesenchymal stem cells to form bone via the endochondral pathway. Methods. MSCs were cultured for 28 days in chondrogenic, osteogenic or control medium prior to implantation. To further optimise this process we induced mineralisation in the chondrogenic constructs before implantation by changing to osteogenic medium during the last 7 days of culture. Results: After 8 weeks of subcutaneous implantation in mice, bone and bone marrow formation was observed in 8 of 9 constructs cultured in chondrogenic medium. No bone was observed in any samples cultured in osteogenic medium. Switch to osteogenic medium for 7 days prevented formation of bone in-vivo. Addition of -glycerophosphate to chondrogenic medium during the last 7 days in culture induced mineralisation of the matrix and still enabled formation of bone and marrow in both human and rat MSC cultures. To determine whether bone was formed by the host or by the implanted tissue we used an immunocompetent transgenic rat model. Thereby we found that osteoblasts in the bone were almost entirely of host origin but the osteocytes are of both host and donor origin. Conclusions: The preliminary data presented in this manuscript demonstrates that chondrogenic priming of MSCs leads to bone formation in vivo using both human and rat cells. Furthermore, addition of -glycerophosphate to the chondrogenic medium did not hamper this process. Using transgenic animals we also demonstrated that both host and donor cells played a role in bone formation. In conclusion these data indicate that in-vitro chondrogenic differentiation of human MSCs could lead to an alternative and superior approach for bone tissue engineering.