We herein examined the bone formation from rat muscle-derived stem cells (rMDSCs) using an injectable in situ-forming chitosan gel in vivo. The rMDSCs were easily isolated from rat muscle tissue. The osteogenic factors caused differentiation of rMDSCs toward the osteogenic lineage. The rMDSCs survived well on the scaffold created by the in vitro and in vivo in situ-forming chitosan gel, indicating that in situ gel-forming chitosan was a suitable substrate for the attachment and proliferation of rMDSCs. Bone formation was observed only in chitosan gel containing both rMDSCs and osteogenic factors. Subcutaneous implantation of the in situ-forming chitosan gel demonstrated that rMDSCs-containing chitosan gel induced much lower host tissue responses than did the chitosan gel alone, probably due to the immunosuppression of the transplanted rMDSCs.