We tested the hypothesis that synthetic composites containing a high percentage of osteoconductive biominerals well-integrated with a hydrophilic polymer matrix can be engineered to provide both the structural and biochemical framework of a viable synthetic bone substitute. FlexBone, an elastic hydrogel-mineral composite exhibiting excellent structural integration was prepared by crosslinking poly(2-hydroxyethyl methacrylate) hydrogel in the presence of 25 wt% nanocrystalline hydroxyapatite and 25 wt% tricalcium phosphate. Biologically active factors tetracycline, BMP-2/7, and RANKL that stimulate bone formation and remodeling were encapsulated into FlexBone during polymerization or via postpolymerization adsorption. SEM and dynamic mechanical analyses showed that the encapsulation of tetracycline (5.0 wt%) did not compromise the structural integrity and compressive behavior of FlexBone, which could withstand repetitive megapascal-compressive loadings and be securely press-fitted into critical femoral defects. Dose-dependent, sustained in vitro release of tetracycline was characterized by spectroscopy and bacterial inhibition. A single dose of 40 ng BMP-2/7 or 10 ng RANKL pre-encapsulated with 50 mg FlexBone, released over 1 week, was able to induce local osteogenic differentiation of myoblast C2C12 cells and osteoclastogenesis of macrophage RAW264.7 cells, respectively. With a bonelike structural composition, useful surgical handling characteristics, and tunable biochemical microenvironment, FlexBone provides an exciting opportunity for the treatment of hard-to-heal skeletal defects with minimal systemic side effects.