The use of endochondral bone grafts (EC) and demineralized bone matrix (DBM), which contains a potent osteoinductive matrix, may promote the repair of nonregenerative defects. The purpose of the current work is to assess qualitatively and quantitatively the effect of DBM on the healing of EC bone grafts and to compare it to the healing of EC bone grafts alone. Twenty-four defects in rabbit skulls were filled with EC bone grafts alone, DBM alone, or combined EC and DBM. Histologic and immunohistologic changes were examined in 2 weeks. The amount of new bone formation was quantified by image analysis. Healing of all the groups was characterized by the presence of a cartilage intermediate stage. In the EC bone grafts alone, healing was localized to the host bone/graft interface. In the composite group, amalgamation of the new bone, DBM, and bone graft progressed throughout the whole width and depth of the defect, uniting the graft to the recipient bed. The amount of new bone formed was significantly greater (47%) in the composite group than the EC group. In conclusion, DBM powder augments the bone-induction capacity of the recipient bed as well as the bone graft. The composite EC bone grafts and added DBM possess properties required for an effective graft material and merit further clinical evaluation.