Insulin-like growth factor I (IGF I) exerts an important role during skeletal growth and bone formation. Therefore, its localized delivery appears attractive for the treatment of bone defects. To prolong IGF I delivery, we entrapped the protein into biodegradable poly(lactide-co-glycolide) microspheres (PLGA MS) and evaluated the potential of this delivery system for new bone formation in two defect models of ovine long bones, i.e., a 8-mm methaphyseal drill hole and a 10-mm segmental tibia defect. Administration of 100 microg of IGF I in PLGA MS resulted in new bone formation within 3 weeks in the drill hole and bridging of the segmental defect within 8 weeks. The observed increase of 12% newly formed bone in the drill hole defect after 3 weeks was substantial, compared to the measured morphometric bone-to-total area ratio of 31% bone in normal cancellous bone. Bone regeneration was further explored by measuring gene expression of typical markers for local mediators and growth factors by real-time polymerase chain reaction. Inflammation was reduced in presence of IGF I and this in vivo observation was corroborated in vitro by quantifying gene expression of inflammatory proteins and by assessing the activation of the NF-kappaB pathway, playing an important role in the regulation of inflammation. Administration of the IGF I delivery system downregulated inflammatory marker gene expression at the site of bone injury, induced new bone formation and reduced bone resorption, and resulted in bridging of 10-mm segmental tibial defects within 8 weeks.