Treatment and reconstruction of large bone defects, delayed unions and non-unions is challenging and has resulted in an ongoing search for novel tissue-engineered therapies. Bone morphogenetic protein-2 (BMP-2) gene therapy is a promising strategy to provide a sustained production of BMP-2 locally. Alginate polymer based non-viral gene therapy with BMP-2 plasmid DNA (pBMP-2) in constructs with multipotent mesenchymal stromal cells (MSCs) has resulted in prolonged gene expression and bone formation in vivo. To further translate this technology towards larger animal models, important issues remain to be investigated, such as the necessity of seeded cells as a target for gene therapy. For that purpose, a large animal-screening model in an orthotopic location, with fully separated chambers, was investigated. Four cylinder shaped implants were placed in the iliac crests of ten goats. Polycaprolactone tubes around each implant allowed bone ingrowth from the underlying bone and bone marrow and ensured separation of the experimental conditions. An empty tube showed low levels of spontaneous bone ingrowth and implantation of autologous bone indicated proper bone function with respect to remodeling and resorption. Control ceramic scaffolds were compared to scaffolds containing pBMP-2 either or not combined with seeded MSCs. Fluorochrome incorporation, evaluated at three, six and nine weeks and histomorphometry at twelve weeks after implantation revealed clear differences between the groups, with pBMP-2 combined with MSCs being most effective. BMP-2 protein was demonstrated in a variety of bone-residing cells through immunohistochemistry. Further analysis indicated that multinucleated giant cells might have an important role in transgene expression. Taken together, this work introduces a large animal model for studying bone formation at multiple sites simultaneously in an orthotopic location. The model appeared robust, showed no neighboring effects and demonstrated effectivity of combined cell-and gene therapy.