To treat bone defects, tissue-engineering methods combine an appropriate scaffold with cells and osteogenic signals to stimulate bone repair. Mesenchymal stem cells (MSCs) derived from adult bone marrow are an ideal source of cells for tissue engineering, in particular for applications in skeletal and hard tissue repair. Core binding factor alpha1 (Cbfa1) is an essential transcription factor for osteoblast differentiation. However, the effects of Cbfa1 on MSCs in vitro and in vivo have not been well characterized. In this study, we found that MSCs modified genetically to express Cbfa1 promoted the healing of segmental defects of the radius in rabbits. First, osteogenic differentiation of MSCs transfected with an adenovirus encoding Cbfa1 was demonstrated. Expression of mRNA from a number of osteoblastic marker genes, including osteocalcin, osteopontin, and type I collagen, was detected. In addition, alkaline phosphatase activity and increased osteocalcin content were observed. The cells expressing the Cbfa1 gene were then combined with acellular bone extracellular matrix in a flow perfusion culture system. Finally, the cell-matrix constructs were implanted into radius defects in the rabbit model. After 12 weeks, radiographic, histological, and biomechanical analyses showed that MSCs modified with the Cbfa1 gene resulted in a significantly higher amount of newly-formed bone and rebuilding of the marrow cavity than control cell-matrix constructs. This study indicates that MSCs modified with the Cbfa1 gene can act as suitable seed cells for the regeneration of bone defects.