Statement of Purpose: Effective cell-based therapies for bone healing require the delivery of cells using instructive biomaterials that localize cells at the target site and provide instructional cues. Hydrogels are widely used in such applications, as they are chemically and physically tailorable, but they often lack the desired osteoconductivity of other common materials. To address this shortcoming, we entrapped mesenchymal stem cells (MSCs) in a novel composite hydrogel with enhanced osteoconductivity to promote bone regeneration in an ovine iliac crest bone defect. The composite hydrogel was composed of alginate, chosen for its tailorability, and hyaluronate, selected for its engagement of the CD44 cell receptor present on MSCs. Arginine-Glycine-Aspartic Acid (RGD) was conjugated to the backbone of both polymers to facilitate cell adhesion. Hydrogel osteoconductivity was increased by incorporating biomineralized polymeric microspheres into the network. We hypothesized that the transplantation of autologous ovine MSCs within this composite hydrogel containing mineralized polymeric microspheres would enhance hydrogel osteoconductivity, increase osteogenic potential, and promote bone healing in an ovine bone defect model.