Most growth factors naturally involved in development and regeneration demonstrate strong binding to the extracellular matrix and are retained there until being locally mobilized by cells. In spite of this feedback between cell activity and growth factor mobilization in the extracellular matrix, this approach has not been extensively explored in therapeutic situations. We present an engineered bone morphogenetic protein-2 (BMP-2) fusion protein that mimics such function in a surgically relevant matrix, fibrin, incorporated into the matrix until it is locally liberated by cell surface-associated proteases. A tripartite fusion protein, denoted TG-pl-BMP-2, was designed and produced recombinantly. An N-terminal transglutaminase substrate (TG) domain provides covalent attachment to fibrin during coagulation under the influence of the blood transglutaminase factor XIIIa. A central plasmin substrate (pl) domain provides a cleavage site for local release of the attached growth factor from the fibrin matrix under the influence of cell-activated plasmin. A C-terminal human BMP-2 domain provides osteogenic activity. TG-pl-BMP-2 in fibrin was evaluated in vivo in critical-size craniotomy defects in rats, where it induced 76% more defect healing with bone at 3 weeks with a dose of 1 mug/defect than wildtype BMP-2 in fibrin. After a dosing study in rabbits, the engineered growth factor in fibrin was evaluated in a prospective clinical study for pancarpal fusion in dogs, where it induced statistically faster and more extensive bone bridging than equivalent treatment with cancellous bone autograft. The strong healing response shown by fibrin including a bound BMP-2 variant suggests that with the combination of bound growth factor and ingrowth matrix, it may be possible to improve upon the natural growth factor and even upon tissue autograft.