The identification of bone morphogenetic proteins (BMPs) has stimulated intense interest in BMP delivery approaches. Ex vivo BMP-2 gene delivery has recently been described using skeletal muscle-derived cells. Skeletal muscle-derived cells, because of proven efficient transgene delivery and osteocompetence, represent an attractive cell population on which to base ex vivo BMP-2 gene delivery. However, the early in vivo fate of BMP-2-expressing muscle-derived cells is unknown. This study investigates the in vivo effects of BMP-2 secretion on skeletal muscle-derived cells in terms of cell survival and cell differentiation. The first experiment compared survival of BMP-2-expressing cells with control cells during the first 48 h after in vivo implantation. The results demonstrate that BMP-2 secretion did not adversely affect cell survival 8, 24, or 48 h after intramuscular implantation. The second experiment histologically compared the fate of BMP-2-expressing muscle-derived cells to the same cells not expressing BMP-2. The results show that BMP-2 expression prevented in vivo myogenic differentiation and promoted osteogenic differentiation of the transduced cells. This study further supports the existence of osteoprogenitor cells residing within skeletal muscle. Moreover, it is demonstrated that BMP-2 secretion does not adversely affect early cell survival of muscle-derived cells. These data are important for future investigations into BMP-2 gene delivery approaches to the musculoskeletal system.