Our previous studies demonstrated that BMP-2 inhibits the tumorigenicity of cancer stem cells identified as cells with high aldehyde dehydrogenase activity (ALDH(br) cells) from the human osteosarcoma cell line OS99-1. We further investigated whether BMP-2 is capable of inducing bone formation in OS99-1 cells. Flow cytometry sorting was used to isolate tumorigenic ALDH(br) and non-tumorigenic ALDH(lo) cells. qRT-PCR was used to quantify the gene expression. A xenograft model was used to verify the bone formation in vivo. There was significantly higher mRNA expression of BMPR1B and BMPR2 in ALDH(lo) cells compared with that in ALDH(br) cells and the BMPR1B expression in ALDH(lo) cells was ~8-fold higher compared to that in ALDHbr cells. BMP-2 was also found to induce higher transcription of osteogenic markers Runx-2, Osterix (Osx), alkaline phosphatase (ALP) and collagen type I in ALDH(lo) cells compared to ALDH(br) cells, which were mediated by the canonical Smad signaling pathway. In vivo, BMP-2 was identified to induce bone formation in both ALDH(br) and ALDH(lo) cells. All animals receiving 1 x 10()4 ALDH(lo) cells treated with 30 µg of BMP-2 per animal showed bone formation within 1-2 weeks after injection in mice. Bone formation induced by BMP-2 in ALDH(lo) cells showed significantly more bone mineral content compared to that in ALDH(br) cells. BMP-2 induces bone formation in heterogeneous osteosarcoma cells and BMP-2 may have a promising therapeutic role for treating human osteosarcoma by inducing differentiation along an osteogenic pathway.