Bone morphogenetic protein 2 (BMP-2) is widely known as a potent growth factor that promotes bone formation. However, an increasing number of studies have demonstrated side effects of BMP-2 therapy. A deeper understanding of the effect of BMP-2 on cells other than those involved directly in bone remodeling is of fundamental importance to promote a more effective delivery of BMP-2 to patients. In this study, we aimed to investigate the effect of BMP-2 in the marrow environment. First, BMP-2 adsorbed onto titanium implants was delivered at the tooth extraction socket (marrow-absent site) or in the mandible marrow of beagle dogs. BMP-2 could induce marked bone formation around the implant at the tooth extraction socket. Surprisingly, however, no bone formation was observed in the BMP-2-coated titanium implants inserted in the mandible marrow. In C57BL/6 mice, BMP-2 adsorbed in freeze-dried collagen pellets could induce bone formation in marrow-absent calvarial bone. However, similar to the canine model, BMP-2 could not induce bone formation in the femur marrow. Analysis of osteoblast differentiation using Col1a1(2.3)-GFP transgenic mice revealed a scarce number of osteoblasts in BMP-2-treated femurs, whereas in the control group, osteoblasts were abundant. Ablation of femur marrow recovered the BMP-2 ability to induce bone formation. In vitro experiments analyzing luciferase activity of C2C12 cells with the BMP-responsive element and alkaline phosphatase activity of MC3T3-E1 osteoblasts further revealed that bone marrow cells inhibit the BMP-2 effect on osteoblasts by direct cell-cell contact. Collectively, these results showed that the effect of BMP-2 in inducing bone formation is remarkably repressed by marrow cells via direct cell-cell contact with osteoblasts; this opens new perspectives on the clarification of the side-effects associated with BMP-2 application. © 2018 American Society for Bone and Mineral Research.