We have engineered synthetic poly(ethylene glycol) (PEG)-based hydrogels as cell-ingrowth matrices for in situ bone regeneration. These networks contain a combination of pendant oligopeptide ligands for cell adhesion (RGDSP) and substrates for matrix metalloproteinase (MMP) as linkers between PEG chains. Primary human fibroblasts were shown to migrate within these matrices by integrin- and MMP-dependent mechanisms. Gels used to deliver recombinant human bone morphogenetic protein-2 (rhBMP-2) to the site of critical- sized defects in rat crania were completely infiltrated by cells and were remodeled into bony tissue within five weeks. Bone regeneration was dependent on the proteolytic sensitivity of the matrices and their architecture. The cell-mediated proteolytic invasiveness of the gels and entrapment of rhBMP-2 resulted in efficient and highly localized bone regeneration.