We sought to develop a retroviral vector system that would produce secretion of high levels of bone morphogenetic protein (BMP)-4 by optimizing the expression construct and developing an improved retroviral vector. Replacement of the propeptide domain of BMP4 with that of BMP2 increased the secretion level of mature BMP4 protein in transduced cells. The intact BMP2 pro-peptide sequence was essential, as deletion of a small part of the propeptide sequence of BMP2 from the BMP2/4 hybrid construct diminished BMP4 expression and secretion. Addition of a hemaglutinin tag to the carboxy terminus of BMP4 abolished the bioactivity of secreted BMP4. Transduction of rat marrow stromal cells (and fibroblasts) with an MFG-based retroviral vector pseudotyped with VSV-G envelope containing this BMP2/4 hybrid expression construct led to secretion of very high levels of mature BMP4 in conditioned medium (up to 1 μg/10⁶ cells/24 hours). The secreted BMP4 was biologically active, as it induced alkaline phosphatase expression in C2C12 cells. The transduced rat marrow stromal cells expressing mature BMP4 induced de novo ectopic bone formation in syngenic immune-competent rats. We have developed an MFG-based retroviral vector system that causes secretion of high levels of functionally active human BMP4 protein.