This study presents a novel biodegradable alginate delivery system for antibiotics and bone cells to treat infected bone defects. About 2 x 10(7) New Zealand rabbit mesenchymal stem cells (MSCs) and 5 mL vancomycin solution (50 mg/mL) were added to 5 mL of 2.5% (w/v) sodium alginate solution to form biodegradable antibiotic and MSCs alginate beads 3 mm in diameter. The alginate beads were then cultured in an osteogenic medium for 14 days. The profiles of antibiotics released from the alginate beads were evaluated using the method of high performance liquid chromatography (HPLC). The expression of osteogenic genes, including Cbfa1 and osteopontin, in the alginate beads was determined by reverse transcription-polymerase chain reaction (RT-PCR) analysis. The alkaline phosphatase activity, calcium level, and mineral deposition of the cultured cells within the alginate beads were assessed. Analytical results demonstrated that the concentrations of vancomycin eluted from the alginate beads were, for 14 days, well above the minimal inhibitory concentration of Staphylococcus aureus. Osteopontin and mRNA of Cbfa1 were detected and increased alkaline phosphatase activity and calcium levels were noted, as was a substantial mineral deposition in cultured MSCs. The PKH 26-labeled MSCs and vancomycin alginate beads were implanted in rabbit bony cavities for in vivo analysis. Implanted PKH 26-labeled MSCs were identified in the newly formed bony trabeculae in all specimens at 2 and 4 months after implantation and there was abundant mineral deposition. The results of in vitro study demonstrated sustained elution of vancomycin from the alginate carrier for 14 days and good osteogenic differentiation of cultured MSCs in the alginate carrier matrix. The results of in vivo study demonstrated the implanted MSCs participating in new bone formation. Based on experimental evidence, development of a biodegradable alginate carrier system for antibiotics and bone cells is possible, providing a potential treatment procedure for infected bone defects.