Implantation of demineralized diaphyseal bone matrix in subcutaneous sites induces a sequence of events resulting in the local differentiation of endochondral bone. Demineralized bovine bone matrix was dissociatively extracted in 4.0 M guanidine hydrochloride and the bone-inductive proteins were purified greater than 12,000-fold. The purification steps include affinity chromatography on heparin-Sepharose, hydroxyapatite chromatography, gel filtration, and C18 reverse-phase HPLC. Since the purified protein in conjunction with insoluble collagenous bone matrix induced new bone differentiation in vivo we have designated this component osteogenin. The osteogenic potential is specific for osteogenin and is not exhibited by previously isolated growth factors.