Diffusion chambers with rat bone marrow cells and demineralized bone matrix (DBM) were implanted subcutaneously to syngeneic 8-week-old rats and were harvested every week 3-7 weeks after implantation, and histochemical examination, determination of alkaline phosphatase activity, total calcium and phosphorus, the bone-specific vitamin K-dependent gla-containing protein (BGP) content, and detection of BGP mRNA relative to mineralization were performed. Alkaline phosphatase in diffusion chamber implants reached the highest activity at 4 weeks and then decreased. Calcium and phosphorus deposits occurred at 4 weeks after implantation and were followed by marked increases until 7 weeks, which was comparable to the accumulation of BGP. The BGP gene within the diffusion chambers began to be expressed at 5 weeks, and its expression increased markedly at 7 weeks after implantation. At 4-5 weeks after implantation, new bone adjacent to the membrane filters and cartilage toward the center of the diffusion chamber were observed histochemically. Light microscopic and immunohistologic examinations of chambers with marrow cells and DBM revealed production of mineralized matrices, typical of bone characterized by the appearance of BGP and mineralized nodules. In contrast, bone marrow cells alone did not show extensive bone formation and yielded very low values for these biochemical parameters. The present experiments demonstrate the potential of bone marrow cells and DBM to produce not only cartilage formation but also membranous bone formation associated with increasing expression of BGP mRNA during the later stages of bone formation, as well as a marked accumulation of BGP.