Controlled delivery of biological cues through synthetic scaffolds to enhance the healing capacity of bone defects is yet to be realized clinically. The purpose of this study was development of a bioactive tissue-engineered scaffold providing the sustained delivery of an osteoinductive drug, dexamethasone disodium phosphate (DXP), encapsulated within chitosan nanoparticles (CN). Porous baghdadite (BD; Ca3ZrSi2O9) scaffolds, a zirconia-modified calcium silicate ceramic, was coated with DXP-encapsulated CN nanoparticles (DXP-CN) using nanostructured gellan and xanthan hydrogel (GX). Crosslinker and GX polymer concentrations were optimized to achieve a homogeneous distribution of hydrogel coating within BD scaffolds. Dynamic laser scattering indicated an average size of 521 +/- 21 nm for the DXP-CN nanoparticles. In vitro drug-release studies demonstrated that the developed DXP-CN-GX hydrogel-coated BD scaffolds (DXP-CN-GX-BD) resulted in a sustained delivery of DXP over the 5 days (78 +/- 6% of drug release) compared with burst release over 1 h, seen from free DXP loaded in uncoated BD scaffolds (92 +/- 8% release in 1 h). To estimate the influence of controlled delivery of DXP from the developed scaffolds, the effect on MG 63 cells was evaluated using various bone differentiation assays. Cell culture within DXP-CN-GX-BD scaffolds demonstrated a significant increase in the expression of early and late osteogenic markers of alkaline phosphatase activity, collagen type 1 and osteocalcin, compared to the uncoated BD scaffold. The results suggest that the DXP-releasing nanostructured hydrogel integrated within the BD scaffold caused sustained release of DXP, improving the potential for osteogenic differentiation. Copyright (c) 2015 John Wiley & Sons, Ltd.