BMP-2 is currently administered clinically using collagen matrices often requiring large amounts of BMP-2 due to burst release over a short period of time. We developed and tested a novel injectable drug delivery system consisting of starch-poly-epsilon-caprolactone microparticles for inducing osteogenesis and requiring smaller amounts of BMP-2. We evaluated BMP-2 encapsulation efficiency and the in vitro release profile by enzyme-linked immunosorbent assay. BMP-2 was rapidly released during the first 12 hours, followed by sustained release for up to 10 days. We then evaluated the osteogenic potential of dexamethasone (standard osteogenic induction agent) and BMP-2 after incorporation and during release using an osteo/myoblast cell line (C2C12). Alkaline phosphatase activity was increased by released BMP-2. Mineralization occurred after stimulation with BMP-2-loaded microparticles. A luciferase assay for osteocalcin promoter activity showed high levels of activity upon treatment with BMP-2-loaded microparticles. In contrast, no osteogenesis occurred in C2C12 cells using dexamethasone-loaded microparticles. However, human adipose stem cells exposed to the microparticles produced high amounts of alkaline phosphatase. The data suggest starch-poly-epsilon-caprolactone microparticles are suitable carriers for the incorporation and controlled release of glucocorticoids and growth factors. Specifically, they reduce the amount of BMP-2 needed and allow more sustained osteogenic effects.