Recombinant human BMP-2, produced in E. coli, refolded and concentrated to a purity of more than 98%, has been demonstrated to be biologically active. In vitro, amounts of 0.4 microg BMP-2 or more induced new cartilage formation in 27 out of 47 samples of a neonatal muscle tissue assay, with chondroneogenesis occurring 14 days after a four-hour contact between BMP-2 and the muscle tissue. In vivo, BMP-2 was implanted in the thigh muscle of ICR mice for a period of three weeks. Amounts of 4 microg BMP-2 and more showed heterotopic bone formation in 15 out of 17 samples. When BMP-2 was combined with a collagen carrier, amounts of 0.4 microg protein or more induced heterotopic bone formation in 30 out of 33 samples four weeks after the implantation in the abdominal wall of Sprague-Dawley rats. The results show that the E. coli-derived BMP-2 was active in different assay systems in concentrations equal to those required with mammalian cell-expressed BMP-2. It could also be demonstrated that a single morphogen (BMP-2) is enough to initiate the differentiation process associated with bone induction. The presented bacterial expression system also offers the opportunity to produce large quantities of recombinant BMP-2 for clinical applications.