Mesenchymal stem cells (MSCs) are multipotent cells capable of proliferating and differentiating into several lineages. In regenerative medicine, their potential as a resource for tissue-replacement therapy is receiving much attention. However, transplanting MSCs to repair larger bone defects in animal models has so far proved disappointing. Here we report on the healing of both critical-sized (5 mm) and massive (15 mm) full-thickness femur defects in rats by implanting a uniquely fabricated PLGA scaffold seeded with MSCs pre-differentiated in vitro into cartilage-forming chondrocytes (MSC-DCs). This strategy closely mimics endochondral ossification, the process by which long bones develop in nature. It is thought that because the transplanted MSC-DCs induced natural bone formation, the defect size was not critical to the outcome. Crucially, after 8 weeks the mean biomechanical strength of femora with the massive 15 mm implant reached 75% that of a normal rat femur, while in the case of 5 mm implants there was no significant difference. Successful healing was also highly reproducible, with bone union occurring in all treated animals examined radiologically 8 or 16 weeks after surgery.