The osteoinductive growth factor, bone morphogenetic protein-2 (BMP-2), is capable of inducing de novo bone formation after implantation. A nanoparticulate (NP) system was developed for BMP-2 delivery based on NPs fabricated from bovine serum albumin (BSA) and stabilized by polyethylenimine (PEI) coating. In this study, the pharmacokinetics and osteoinductivity of BMP-2 delivered with different BSA NP formulations were determined by subcutaneous implantation in rats. A 7-day pharmacokinetics study showed that PEI coating on NPs effectively reduced the initial burst release of BMP-2 and prolonged the BMP-2 retention at implantation site. However, the uncoated BMP-2 NPs (BMP-2 loading of 1.44% w/w) were able to induce a robust ectopic bone formation, while no bone formation was found by the BMP-2 NPs coated with PEI. The toxicity of the PEI used for NP coating was determined to be the reason for lack of osteoinduction. Increasing BMP-2 loading (up to 5.76% w/w) was then employed to formulate NPs with lower PEI content; the higher BMP-2 loading was found to better promote induction of de novo bone. Our findings indicated that PEI coating on BSA NPs was effective for controlling BMP-2 release from NPs, but the toxicity of cationic PEI was a concern for the osteoinductive activity, which should be alleviated by further optimization of NP formulations.