As the in vivo function of bone marrow-engrafted umbilical cord blood (UCB)-derived mesenchymal cells (UCBCs) after UCB transplantation is unknown, we examined in vivo osteoblastic differentiation using mouse UCB transplantation and fracture models. UCBCs obtained from GFP transgenic mice were intravenously injected into irradiated C57BL/6 mice. After three months, the in vivo osteoblastic differentiation potential of bone marrow-engrafted UCBCs was examined histologically using a mouse fracture model. GFP-positive UCBCs were detected in the bone marrow of recipient mice. On day 7, UCBCs were observed in the fracture gap and surrounding the titanium screws of the fixation device. The UCBCs were also positive for alkaline phosphatase and von Kossa staining. By day 14, UCBCs were observed around and within a formed intramedullary callus. The newly formed woven bone consisted of ALP- and von Kossa-positive cells. Our findings suggest that UCBCs contribute to the fracture healing process after bone marrow engraftment and that UCBC transplantation can fully reconstruct not only hematopoietic cells but also mesenchymal cell lineages.