Baculovirus efficiently transduces human mesenchymal stem cells (hMSCs) and transplantation of hMSCs transduced with a bone morphogenetic protein 2-expressing baculovirus (Bac-CB) into nude mice results in ectopic bone formation. To attest the clinical potential of baculovirus in bone regeneration, hereby we explored whether the hMSCs genetically modified by Bac-CB were tolerant in immunocompetent rats and further healed the critical-sized calvarial bone defect. The histological and computed tomographic studies demonstrated that Bac-CB-engineered hMSCs promoted the cell differentiation and new bone formation in the immunocompetent rats. Immunohistochemical staining revealed that the transplanted human cells remained detectable at 1 and 4 weeks posttransplantation, attesting the immunoprevileged properties of hMSCs. In the recipients, the donor cells aggregated and appeared osteoblast like at later stages, which paralleled the infiltration of macrophages, CD3(+), and CD8(+) T cells into the graft. Administration of immunosuppressive drugs prolonged the cell survival and improved the bone regeneration, yet it failed to entirely abolish the immune response and complete the bone healing. Our data altogether implicate the potential of Bac-CB for hMSCs engineering and calvarial bone repair, but the use of hMSCs cannot overcome the immunological barrier.