To induce bone formation at ectopic site by tissue engineering and gene therapy, we transplanted collagen sponges containing rhBMP-7 transduced HEK 293 cells in the hypodermis of nude mice. Bone formation was investigated by histological and electron microscopic method at 3, 6, and 9 weeks after transplantation. At 9 weeks after transplantation, eosinophilic bony tissue was observed in the implanted collagen sponge and was confirmed as bone tissue by Von Kossa stain. In the transmission electron microscopic observation, the cells in newly formed bone tissue had eccentrically located nucleus and well developed rough endoplasmic reticulum (rER). Therefore, the cells were evaluated as osteoblasts. Those results suggest that it is possible to form a bone tissue in the ectopic site by transplantation of rhBMP-7 transduced HEK 293 cells. This will be contributed to push more advanced gene therapy for bone formation. However, the HEK 293 cell is unable to apply to the clinical gene therapy. Therefore it is worth to find more compatible cells for clinical application. In addition, collagen sponge is considered as an excellent scaffold and/or carrier for gene therapy and a good biomaterial for tissue engineering.