Fibroblast growth factor-2 (FGF2) has been demonstrated to be a promising osteogenic factor for treating osteoporosis. Our earlier study shows that transplantation of mouse Sca-1(+) hematopoietic stem/progenitor cells that are engineered to express a modified FGF2 leads to considerable endosteal/trabecular bone formation, but it also induces adverse effects like hypocalemia and osteomalacia. Here we report that the use of an erythroid specific promoter, β-globin, leads to a 5-fold decrease in the ratio of serum FGF2 to the FGF2 expression in the marrow cavity when compared to the use of a ubiquitous promoter spleen focus-forming virus (SFFV). The confined FGF2 expression promotes considerable trabeculae bone formation in endosteum and does not yield anemia and osteomalacia. The avoidance of anemia in the mice that received Sca1(+) cells transduced with FGF2 driven by the β-globin promoter is likely due to attenuation of high-level serum FGF2-mediated stem cell mobilization observed in the SFFV-FGF2 animals. The prevention of osteomalacia is associated with substantially reduced serum Fgf23/hypophosphatemia, and less pronounced secondary hyperparathyroidism. Our improved stem cell gene therapy strategy represents one step closer to FGF2-based clinical therapy for systemic skeletal augmentation.