Abstract Muscle-derived stem cells (MDSCs) isolated from mouse skeletal muscle by a modified preplate technique exhibit long-term proliferation, high self-renewal, and multipotent differentiation capabilities in vitro. MDSCs retrovirally transduced to express bone morphogenetic proteins (BMPs) can differentiate into osteocytes and chondrocytes and enhance bone and articular cartilage repair in vivo, a feature that is not observed with nontransduced MDSCs. These results emphasize that MDSCs require prolonged exposure to BMPs to undergo osteogenic and chondrogenic differentiation. A sustained BMP protein delivery approach provides a viable and potentially more clinically translatable alternative to genetic manipulation of the cells. A unique growth factor delivery platform comprised of native heparin and a synthetic polycation, poly(ethylene argininylaspartate diglyceride) (PEAD), was used to bind, protect, and sustain the release of bone morphogenetic protein-2 (BMP2) in a temporally and spatially controlled manner. Prolonged exposure to BMP2 released by the PEAD:heparin delivery system promoted the differentiation of MDSCs to an osteogenic lineage in vitro and induced the formation of viable bone at an ectopic site in vivo. This new strategy represents an alternative approach for bone repair mediated by MDSCs while bypassing the need for gene therapy.