Embryonic development, lengthening, and repair of most bones proceed by endochondral ossification, namely through formation of a cartilage intermediate. It was previously demonstrated that adult human bone marrow-derived mesenchymal stem/stromal cells (hMSCs) can execute an endochondral program and ectopically generate mature bone. Here we hypothesized that hMSCs pushed through endochondral ossification can engineer a scaled-up ossicle with features of a "bone organ," including physiologically remodeled bone, mature vasculature, and a fully functional hematopoietic compartment. Engineered hypertrophic cartilage required IL-1β to be efficiently remodeled into bone and bone marrow upon subcutaneous implantation. This model allowed distinguishing, by analogy with bone development and repair, an outer, cortical-like perichondral bone, generated mainly by host cells and laid over a premineralized area, and an inner, trabecular-like, endochondral bone, generated mainly by the human cells and formed over the cartilaginous template. Hypertrophic cartilage remodeling was paralleled by ingrowth of blood vessels, displaying sinusoid-like structures and stabilized by pericytic cells. Marrow cavities of the ossicles contained phenotypically defined hematopoietic stem cells and progenitor cells at similar frequencies as native bones, and marrow from ossicles reconstituted multilineage long-term hematopoiesis in lethally irradiated mice. This study, by invoking a "developmental engineering" paradigm, reports the generation by appropriately instructed hMSC of an ectopic "bone organ" with a size, structure, and functionality comparable to native bones. The work thus provides a model useful for fundamental and translational studies of bone morphogenesis and regeneration, as well as for the controlled manipulation of hematopoietic stem cell niches in physiology and pathology.