Periosteum has been demonstrated to have cell populations, including chondroprogenitor and osteoprogenitor cells, that can form both cartilage and bone under appropriate conditions. In the present study, periosteum was harvested, expanded in cell culture, and used to repair critical size calvarial defects in a rabbit model. Periosteum was isolated from New Zealand White rabbits, grown in cell culture, labeled with the thymidine analog bromodeoxyuridine for later localization, and seeded into resorbable polyglycolic acid scaffold matrices. Thirty adult New Zealand White rabbits were divided into groups, and a single 15-mm diameter full-thickness calvarial defect was made in each animal. In group I, defects were repaired using resorbable polyglycolic acid implants seeded with periosteal cells. In group II, defects were repaired using untreated polyglycolic acid implants. In group III, the defects were left unrepaired. Rabbits were killed at 4 and 12 weeks postoperatively. Defect sites were then studied histologically, biochemically, and radiographically. In vitro analysis of the cultured periosteal cells indicated an osteoblastic phenotype, with production of osteocalcin upon 1,25(OH)2 vitamin D3 induction. In vivo results at I weeks showed islands of bone in the defects repaired with polyglycolic acid implants with periosteal cells (group I), whereas the defects repaired with untreated polyglycolic acid implants (group II) were filled with fibrous tissue. Collagen content was significantly increased in group I compared with group II (2.90 ± 0.80 μg/mg dry weight versus 0.08 ± 0.11 μg/mg dry weight, p < 0.006), as was the ash weight (0.58 ± 0.11 mg/mg dry weight versus 0.35 ± 0.06 mg/mg dry weight, p < 0.015). At 12 weeks there were large amounts of bone in group I, whereas there were scattered islands of bone in groups II and III. Radiodensitometry demonstrated significantly increased radiodensity of the defect sites in group I, compared with groups II and III (0.740 ± 0.250 OD/mm2 versus 0.404 ± 0.100 OD/mm2 and 0.266 ± 0.150 OD/mm2, respectively, p < 0.05). Bromodeoxyuridine label, as detected by immunofluorescence, was identified in the newly formed bone in group I at both 4 and 12 weeks, confirming the contribution of the cultured periosteal cells to this bone formation. This study thus demonstrates a tissue-engineering approach to the repair of bone defects, which may have clinical applications in craniofacial and orthopedic surgery.