Regulated expression of transgene production and function is of great importance for gene therapy. Such regulation can potentially be used to monitor and control complex biological processes. We report here a regulated stem cell-based system for controlling bone regeneration, utilizing genetically engineered mesenchymal stem cells (MSCs) harboring a tetracycline-regulated expression vector encoding the osteogenic growth factor human BMP-2. We show that doxycycline (a tetracycline analogue) is able to control hBMP-2 expression and thus control MSC osteogenic differentiation both in vitro and in vivo. Following in vivo transplantation of genetically engineered MSCs, doxycycline administration controlled both bone formation and bone regeneration. Moreover, our findings showed increased angiogenesis accompanied by bone formation whenever genetically engineered MSCs were induced to express hBMP-2 in vivo. Thus, our results demonstrate that regulated gene expression in mesenchymal stem cells can be used as a means to control bone healing.