A clinical dilemma exists regarding the type of bone that should be used to replace diseased or traumatized osseous tissue. Oral, plastic, and orthopedic surgeons normally implant viable mineralized endochondral (EC) autografts or demineralized EC allografts. A few clinicians have recognized the disadvantages of using EC bone in craniofacial surgery and advocated the replacement of intramembranous (IM) bone with healthy IM bone. However, controversy and uncertainty surround our understanding of these matrices to induce bone formation. Recent studies have advocated the use of other materials with osteoinductive properties, such as demineralized bone matrix (DBM). The proposed delivery system used in this study included IM bone grafts, DBM, and fixation of the IM bone graft. The purpose of this work was to gain further insights into the mechanism of healing of IM bone, in both the presence and the absence of DBM, and to compare the healing of IM bone grafts with that of DBM alone. Critical-sized (10 x 5 mm), full-thickness bony defects in rabbit parietal bone, devoid of periosteum, were filled with IM bone graft (mandible) alone, demineralized cortical bone matrix (DBM) alone, or combined DBM-IM bone graft, or were left unfilled. Histologic changes were examined 14 days later. The IM bone graft healed through IM ossification with no intermediate cartilage stage. DBM and composite DBM-IM healed through an EC ossification with an intermediate cartilage stage. It is hypothesized that the role of the IM graft is to induce neovascularization into the defect site, and that the undifferentiated mesenchymal cells in the perivascular region of the new blood vessels are induced by the bone morphogenetic protein(s) in the DBM into bone-forming cells.