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Osteoblast-derived VEGF is important for bone development and postnatal bone homeostasis. Previous studies have demonstrated that VEGF affects bone repair and regeneration; however, the cellular mechanisms by which it works are not fully understood. In this study, we investigated the functions of osteoblast-derived VEGF in healing of a bone defect. The results indicate that osteoblast-derived VEGF plays critical roles at several stages in the repair process. Using transgenic mice with osteoblast-specific deletion of Vegfa, we demonstrated that VEGF promoted macrophage recruitment and angiogenic responses in the inflammation phase, and optimal levels of VEGF were required for coupling of angiogenesis and osteogenesis in areas where repair occurs by intramembranous ossification. VEGF likely functions as a paracrine factor in this process because deletion of Vegfr2 in osteoblastic lineage cells enhanced osteoblastic maturation and mineralization. Furthermore, osteoblast- and hypertrophic chondrocyte–derived VEGF stimulated recruitment of blood vessels and osteoclasts and promoted cartilage resorption at the repair site during the periosteal endochondral ossification stage. Finally, osteoblast-derived VEGF stimulated osteoclast formation in the final remodeling phase of the repair process. These findings provide a basis for clinical strategies to improve bone regeneration and treat defects in bone healing.