Nell-1 is a recently discovered secreted protein with the capacity to promote osteoblastic calvarial cell differentiation and mineralization and induce calvarial bone overgrowth and regeneration in various rodent models. However, the extent of Nell-1 osteoinductivity in large animal cells remains unknown. The objective of the study was to evaluate the feasibility of adenoviral encoding Nell-1 (AdNell-1) gene transfer into primary adult goat bone marrow stromal cells (BMSCs) in vitro and in vivo and to compare the osteoinductive effects with those produced by bone morphogenetic protein-2 (BMP-2), a well established osteoinductive molecule currently utilized for regional gene therapy. AdNell-1-transduced BMSCs expressed Nell-1 protein and underwent osteoblastic differentiation within 2 weeks in vitro, which is comparable to AdBMP-2. After intramuscular injection of nude mice, the AdNell-1- and AdBMP-2-transduced BMSCs revealed new bone formation, while untransduced or AdLacZ-transduced BMSCs showed mainly fibrotic tissue proliferation. At 4 weeks, BMP-2 induced significantly larger bone mass with a mature bone margin and central cavity filled with primarily fatty marrow tissue. Nell-1 samples had significantly less bone mass but were histologically similar to newly formed trabecular bone mixed with chondroid bone-like areas verified by type X collagen (ColX) immunohistochemistry. This distinct difference in histomorphology from the bone mass induced by BMP-2 suggests that there is a potential clinical role/advantage for Nell-1 in skeletal tissue engineering and regeneration.