We characterized the differentiation of rat bone marrow-derived mesenchymal stem cells (BM-MSCs) into tenocyte-like cells in response to bone morphogenetic protein-12 (BMP-12). BM-MSCs were prepared from Sprague-Dawley rats and cultured as monolayers. Recombinant BMP-12 treatment (10 ng/ml) of BM-MSCs for 12 hours in vitro markedly increased expression of the tenocyte lineage markers scleraxis (Scx) and tenomodulin (Tnmd) over 14 days. Treatment with BMP-12 for a further 12-hour period had no additional effect. Colony formation assays revealed that ~80% of treated cells and their progeny were Scx- and Tnmd-positive. BM-MSCs seeded in collagen scaffolds and similarly treated with a single dose of BMP-12 also expressed high levels of Scx and Tnmd, as well as type I collagen and tenascin-c. Furthermore, when the treated BM-MSC-seeded scaffolds were implanted into surgically created tendon defects in vivo, robust formation of tendon-like tissue was observed after 21 days as evidenced by increased cell number, elongation and alignment along the tensile axis, greater matrix deposition and the elevated expression of tendon markers. These results indicate that brief stimulation with BMP-12 in vitro is sufficient to induce BM-MSC differentiation into tenocytes, and that this phenotype is sustained in vivo. This strategy of pretreating BM-MSCs with BMP-12 prior to in vivo transplantation may be useful in MSC-based tendon reconstruction or tissue engineering.