Biomimetic delivery of osteoinductive growth factors via an osteoconductive matrix is an interesting approach for stimulating bone regeneration. In this context, the bone extracellular matrix (ECM) has been explored as an optimal delivery system, since it releases growth factors in a spatiotemporal manner from the matrix. However, a bone ECM hydrogel alone is weak, unstable, and prone to microbial contamination and also has been reported to have significantly reduced bone morphogenic protein-2 (BMP-2) post decellularization. In the present work, a microsphere embedded osteoinductive decellularized bone ECM/oleoyl chitosan based hydrogel construct (BOC) was developed as a matrix allowing dual delivery of an anti-resorptive drug (alendronate, ALN, via the microspheres) and BMP-2 (via the hydrogel) for a focal tibial defect in a rabbit model. The synthesized gelatin microspheres (GMs) were spherical in shape with diameter ∼32 μm as assessed by SEM analysis. The BOC construct showed sustained release of ALN and BMP-2 under the studied conditions. Interestingly, amniotic membrane-derived stem cells (HAMSCs) cultivated on the hydrogel construct demonstrated excellent biocompatibility, cell viability, and active proliferation potential. Additionally, cell differentiation on the constructs showed an elevated expression of osteogenic genes in an RT-PCR study along with enhanced mineralized matrix deposition as demonstrated by alkaline phosphatase (ALP) assay and alizarin red assay. The hydrogel construct was witnessed to have improved neo-vascularization potential in a chick chorioalantoic membrane (CAM) assay. Also, histological and computed tomographic findings evidenced enhanced bone regeneration in the group treated with the BOC/ALN/BMP hydrogel construct in a rabbit tibial defect model. To conclude, the developed multifunctional hydrogel construct acts as an osteoinductive and osteoconductive platform facilitating controlled delivery of ALN and BMP-2, essential for stimulating bone tissue regeneration.