To apply osteoblasts to bone reconstruction, we proved that transplanted osteoblasts possessed the differentiated osteoblastic function and formed bonelike tissue in vivo after transplantation. First, we confirmed that dexamethasone (Dex) promoted the expression of osteoblastic phenotype in human osteoblast culture using reverse-transcription-polymerase chain reaction (RT-PCR). These osteoblasts were cultured for 10 days within collagen sponge, which consists of denatured type I collagen, in the presence or absence of 10(-7) M Dex. The osteoblasts along with collagen sponge were transplanted into the trapezius muscles of 8-week-old severe combined immunodeficiency (SCID) mice, and the transplants were harvested at 2, 4, 6, and 8 weeks. At 2 weeks, Dex-treated osteoblasts formed bonelike tissue, the quantity of which increased in a time-dependent manner to 8 weeks. This bonelike tissue was composed of mineralized collagen matrix newly synthesized by the transplanted osteoblasts. This mineralized matrix was separated from the osteoblasts by nonmineralized matrixlike osteoid. Furthermore, many osteocytic cells were observed in this mineralized matrix. A high expression of alkaline phosphatase (ALPase) and osteocalcin was detected in the transplanted cells surrounding the bonelike tissue. In situ hybridization for human-specific alu sequence indicated that newly formed bone was of donor origin. The transplants of nontreated cells failed to form bonelike tissue. The transplants of collagen sponge alone formed no bonelike tissue. These studies indicate that Dex-treated human osteoblasts possess the differentiated osteoblastic function and are able to form bone tissue in vivo. These new findings are of use in facilitating the application of osteoblasts to bone reconstruction.