Abstract This study was designed to identify the phenotype of cells involved in the healing process of allogeneic bone grafts augmented by basic fibroblast growth factor (bFGF). Eighteen critical size (15×10mm) defects were created bilaterally on rabbit mandibles. Three groups of six defects each were grafted with allogeneic bone alone, allogeneic bone and demineralized bone matrix prepared from intramembranous bone (DBMIM), or allogeneic bone and bFGF reconstituted in DBMIM. Cellular identification was carried out at three weeks postgrafting by light and electron microscopy. The results showed that there were many bone appositional cells and capillaries across the whole defect where the abundant newly formed bone were evident in allogeneic IM bone and bFGF in DBMIM grafts. In conclusion, composite allogeneic IM bone-bFGFDBMIM graft healed through an intramembranous ossification route, which was greatly accelerated by the presence of bFGF and DBMIM through recruitment of osteoprogenitor cells, differentiation and proliferation of osteoblastic cells, and capillary invasion.