Endochondral bone formation requires new blood vessel formation, and endothelial progenitor cells (EPCs) may play a role in this process. Endothelial colony-forming cells (ECFCs), one subtype of EPCs, isolated from the microvasculature of rat lungs, exhibited cell surface antigen markers and gene products characteristic of endothelial cells and displayed high proliferative potential and an ability to form vessel-like network structures in vitro. The aim of this study was to evaluate whether ECFCs facilitate bone healing during fracture repair and stimulate bone regeneration. When type I collagen sponge containing ECFCs were surgically wrapped around the fractured femurs of rats, newly formed bone mineral at the site of fracture was 13% greater (P = 0.01) and energy to failure was 46% greater (P = 0.01) compared to sponge-wrapped fractures without ECFCs. When ECFCs in type I collagen sponge were surgically implanted into the bone defective area, more new vessels formed locally in comparison with sponge-alone controls and new bone tissues were seen. Further, co-implantation of ECFCs and hydroxyapatite/tricalcium phosphate (HA/TCP) scaffolds at the bone defective sites stimulated more new bone tissues than HA/TCP scaffold alone. These results show that cell therapy with vessel wall-derived ECFCs can induce new vessel formation, stimulate new bone formation, and facilitate bone repair and could be a useful approach to treat non-union fractures and bone defects.