Although bone morphogenetic proteins (BMPs) are clinically useful for bone regeneration, large amounts are required to induce new bone formation in monkeys and humans. We found recently that heparin stimulates BMP activity in vitro (Takada, T., Katagiri, T., Ifuku, M., Morimura, N., Kobayashi, M., Hasegawa, K., Ogamo, A., and Kamijo, R. (2003) J. Biol. Chem. 278, 43229-43235). In the present study, we examined whether heparin enhances bone formation induced by BMPs in vivo and attempted to determine the molecular mechanism by which heparin stimulates BMP activity using C2C12 myoblasts. Heparin enhanced BMP-2-induced gene expression and Smad1/5/8 phosphorylation at 24 h and thereafter, although not within 12 h. Heparitinase treatment did not affect the response of cells to BMP-2. In the presence of heparin, degradation of BMP-2 was blocked, and the half-life of BMP-2 in the culture medium was prolonged by nearly 20-fold. Although noggin mRNA was induced by BMP-2 within 1 h regardless of the presence of heparin, noggin failed to inhibit BMP-2 activity in the presence of heparin. Furthermore, simultaneous administration of BMP-2 and heparin in vivo dose-dependently induced larger amounts of mineralized bone tissue compared with BMP-2 alone. These findings clearly indicate that heparin enhances BMP-induced osteoblast differentiation not only in vitro but also in vivo. This study indicates that heparin enhances BMP-induced osteoblast differentiation in vitro and in vivo by protecting BMPs from degradation and inhibition by BMP antagonists.