Bone-morphogenetic protein 2 (BMP2) is currently the only Food and Drug Administration-approved osteoinductive growth factor used in clinical settings for bone regeneration and repair. However, the use of BMP2 is encumbered by numerous clinical complications, including postoperative inflammation and life-threatening cervical swelling. Thus, methods to prevent BMP2-induced inflammation would have far-reaching clinical implications toward improving current BMP2-based methods for bone regeneration. For the first time, we investigate the potential role of the growth factor Nel-like molecule-1 (NELL-1) in inhibiting BMP2-induced inflammation. Adult rats underwent a femoral bone onlay procedure, treated with either BMP2 protein (4 mg/mL), NELL-1 protein (4 mg/mL), or both proteins combined. Animals were evaluated at 3, 7, and 14 days postoperatively by histology, histomorphometry, immunohistochemistry, and real-time PCR for markers of inflammation (TNFα, IL6). The relative levels of TNFα and IL6 in serum were also detected by ELISA. The mechanism for NELL-1's anti-inflammatory effect was further assessed through examining inflammatory markers and generation of reactive oxygen species (ROS) in the mouse embryonic fibroblast NIH3T3 cells. BMP2 significantly induced local inflammation, including an early and pronounced polymorphonuclear cell infiltration accompanied by increased expression of TNFα and IL6. Treatment with NELL-1 alone elicited no significant inflammatory response. However, NELL-1 significantly attenuated BMP2-induced inflammation by all markers and at all timepoints. These local findings were also confirmed using systemic serum inflammatory biomarkers (TNFα, IL6). In each case, NELL-1 fully reversed BMP2-induced systemic inflammation. Lastly, our findings were recapitulated in vitro, where NELL-1 suppressed BMP2 induced expression of inflammatory markers, as well as NF-κB transcriptional activity and generation of ROS. BMP2-induced inflammation is a serious public health concern with potentially life-threatening complications. In the present study, we observed that the growth factor, NELL-1, significantly attenuates or completely reverses BMP2-induced inflammation. The mechanisms of NELL-1's anti-inflammatory effect are only partially elucidated, and may include reduction of NF-κB transcriptional activity or ROS generation.