In this study, we tested the hypothesis that a surface functionalization delivery platform incorporating heparin onto strontium alginate microbeads surfaces would convert this "naive carriers" into "mini-reservoirs" for localized in vivo delivery of recombinant human bone morphogenetic protein-2 (rhBMP-2) that will induce functional bone regeneration. In vitro evaluation confirmed that (1) heparin incorporation could immobilize and prolong rhBMP-2 release for approximately 3 weeks; (2) a significant decrease (p<0.01) in rhBMP-2 burst release is attainable depending on initial protein load; and (3) rhBMP-2 released from surface functionalized microbeads retained bioactivity and stimulated higher alkaline phosphatase activity in cultured C(2)C(12) cells when compared with daily administration of fresh bolus rhBMP-2. Subsequently, surface functionalized microbeads were used for in vivo delivery of rhBMP-2 at local sites of posterolateral spinal fusion surgery in rats. The microbeads were loaded into the pores of medical-grade polyepsilone caprolactone-tricalcium phosphate scaffolds before implantation. Results revealed robust bone formation and a biomechanically solid fusion after 6 weeks. When compared with a control group consisting of an equivalent amount of rhBMP-2 that was directly adsorbed onto bare-surfaced microbeads with no heparin, a 5.3-fold increase in bone volume fraction and a 2.6-fold increase in bending stiffness (flexion/extension) were observed. When compared with collagen sponge carriers of rhBMP-2, a 1.5-fold and a 1.3-fold increase in bone volume fraction and bending stiffness were observed, respectively. More importantly, 3D micro-computed tomography images enabled the visualization of a well-contained newly formed bone at ipsilateral implant sites with surface functionalized rhBMP-2 delivery. This was absent with collagen sponge carriers where newly formed bone tissue was poorly contained and crossed over the posterior midline to contralateral implants. These findings are important because of complications with current rhBMP-2 delivery method, including excessive, uncontrolled bone formation.