Scaffolds prepared from biodegradable polyurethanes (PUR) have been investigated as a supportive matrix and delivery system for skin, cardiovascular, and bone tissue engineering. While previous studies have suggested that PUR scaffolds are biocompatible and moderately osteoconductive, the effects of encapsulated osteoinductive molecules, such as recombinant human bone morphogenetic protein (rhBMP-2), on new bone formation have not been investigated for this class of biomaterials. The objective of this study was to investigate the effects of different rhBMP-2 release strategies on new bone formation in PUR scaffolds implanted in rat femoral plug defects. In the simplest approach, rhBMP-2 was added as a dry powder prior to the foaming reaction, which resulted in a burst release of 35% followed by a sustained release for 21 days. Encapsulation of rhBMP-2 in either 1.3-micron or 114-micron PLGA microspheres prior to the foaming reaction reduced the burst release. At 4 weeks post-implantation, all rhBMP-2 treatment groups enhanced new bone formation relative to the scaffolds without rhBMP-2. Scaffolds incorporating rhBMP-2 powder promoted the most extensive new bone formation, while scaffolds incorporating rhBMP-2 encapsulated in 1.3-micron microspheres, which exhibited the lowest burst release, promoted the least extensive new bone formation. Thus our observations suggest that an initial burst release followed by sustained release is better for promoting new bone formation.