BMP2 is widely used for promotion of bone repair and regeneration. However, bone formation induced by BMP2 is quite variable. Bone forming progenitor cells in different locations appear to respond to BMP2 in different ways, and repair outcomes can vary as a consequence of modulating effects by other factors. In this study, we have examined the effects of VEGF on BMP2-induced repair of a cortical bone defect, a 1 mm diameter drill hole, in the proximal tibia of mice. Treatment of the defect with either a bolus of PBS or soluble VEGFR1 (sVEGFR1), a decoy receptor for VEGF, had the same effects on bone formation via intramembranous ossification in the defect and cartilage formation and injured periosteum, during the healing process. In contrast, treatment with BMP2 inhibited intramembranous bone formation in the defect while it promoted cartilage and endochondral bone formation in the injured periosteum compared with mice treated with PBS or sVEGFR1. The inhibitory effect of BMP2 on bone formation was unlikely due to increased osteoclast activity and decreased invasion of blood vessels in the defect. Most importantly, co-delivery of BMP2 and sVEGFR1 reversed the inhibition of intramembranous bone formation by BMP2. Furthermore, the decreased accumulation of collagen and production of bone matrix proteins in the defect of groups with BMP2 treatment could also be prevented by co-delivery of BMP2 and sVEGFR1. Our data indicate that introducing a VEGF-binding protein, such as sVEGFR1, to reduce levels of extracellular VEGF, may enhance the effects of BMP2 on intramembranous bone formation.