Allogeneic and autologous marrow transplants are routinely used to correct a wide variety of diseases. In addition, autologous marrow transplants potentially provide opportune means of delivering genes in transfected, engrafting stem cells. However, relatively little is known about the mechanisms of engraftment in transplant recipients, especially in the nonablated setting and with regard to cells not of hemopoietic origin. In particular, this includes stromal cells and progenitors of the osteoblastic lineage. We have demonstrated for the first time that a whole bone marrow transplant contains cells that engraft and become competent osteoblasts capable of producing bone matrix. This was done at the individual cell level in situ, with significant numbers of donor cells being detected by fluorescence in situ hybridization in whole femoral sections. Engrafted cells were functionally active as osteoblasts producing bone before being encapsulated within the bone lacunae and terminally differentiating into osteocytes. Transplanted cells were also detected as flattened bone lining cells on the periosteal bone surface.