Despite advances in bone grafting technology for musculoskeletal injury, re-injury or incomplete healing persists. Efforts to modify bone allografts sing proteins and growth factors show improvement in wound healing outcomes. We use FTY720, an agonist of S1P receptors 1 and 3, to improve bone graft integration through bone regeneration and vascularization. Four methods of delivering FTY720 into a bone defect are described: 1) FTY720 loaded onto a PLAGA-coated bone allograft and implanted in a critical size rat cranial defect; 2) FTY720 loaded onto a PLAGA-coated bone allograft and implanted in a rat tibial defect; 3) FTY720 loaded into a Matrigel plug and injected into a mouse tibial fracture; and 4) FTY720 directly adsorbed to human bone xenografts and implanted in a critical size rat cranial defect. In each of these models, FTY720 release was characterized, and bone regeneration and vascularization was monitored within the defect. Additionally, local tissue composition and immune response was evaluated. The results presented here indicate that FTY720 released locally into the bone defect improved new bone formation and vascularization, promoting improved graft integration.