The formation of ectopic bone within skeletal muscle is a widely observed phenomenon. However, the source of the osteoprogenitor cells responsible for ectopic bone formation remains unknown. This study was designed to test for osteogenic differentiation among cells isolated from skeletal muscle tissue. Different subpopulations of cells derived from an adult mouse skeletal muscle were tested for induction of alkaline phosphatase activity after exposure to bone morphogenetic protein-2 in vitro. A responsive subpopulation was identified, transduced with a retrovirus encoding for beta-galactosidase (Rv-lacZ) and an adenoviral construct encoding for one bone morphogenetic protein-2, and injected into the hindlimb of immune compromised (severe combined immunodeficient, or SCID) mice. The injected cells appeared to actively participate in the ectopic bone formation. The existence of lacZ-positive muscle-derived cells colocalized with osteocalcin-producing cells within lacunae of newly formed bone matrix suggests osteoblast and osteocyte differentiation. Although a specific cell was not isolated, these data support the contentions that osteoprogenitor cells reside within skeletal muscle and that muscle may represent a source other than bone marrow for the harvest of these cells.