In adult rabbits, mid-diaphyseal segments of the radius or ulna were excised to produce defects greater than the critical size for spontaneous bone repair. The defects were enveloped in sleeves composed of nonbiodegradable expanded polyfluoroethylene (ePTFE), pore size 30, 60, 90 microns, and compared with sleeves of three biodegradable materials. Bone morphogenetic protein and associated noncollagenous bone matrix protein (BMP/NCP) or recombinant human morphogenetic protein (rhBMP-2) were implanted inside the sleeves. Albumin was implanted for a control system. Without intracompartmental BMP, only about 10%-15% of the defect was repaired by bone growth extending from the bone ends into the sleeves composed of ePTFE, pore size 30 microns. With sleeves with pore size 60 or 90 microns and intracompartmental BMP/NCP, 54%-96% regeneration occurred within 8 weeks after the operation. Sleeves of biodegradable nonimmunogenic materials such as polyorthoester (POE) and polylactic-polyglycollic acids (PLA/PGA) permitted 86%-98% restoration of bone continuity, but only when BMP was present in the lumen. With puncture holes (0.5 mm in diameter), implants of BMP/NCP in the 30-micron PTFE sleeve produced transmembrane external callus formation and bone regeneration to 147%. Sleeves composed of aorta first calcified, then induced complete intracompartmental bone regeneration. Atelocollagen sleeves incited a low-grade inflammatory cell reaction and did not promote complete regeneration. Under conditions presently undisclosed segments of the ulna bridged with ePTFE, were incompletely paired, even with intracompartmental BMP/NCP. Puncture holes of 0.5 mm admitted ingrowth of capillaries and introduced local conditions favorable for the response to BMP/NCP. BMP/NCP may promote proliferation of nutrient vessels and differentiation of bone marrow stroma cells between the open bone ends. For further investigation, the hypothesis to be examined is that the optimum response to BMP/NCP and rhBMP-2 would emerge in compartments containing first a high concentration gradient and second proliferating perivascular cells.