Neurological heterotopic ossification (NHO) is the abnormal formation of bone in soft tissues as a consequence of spinal cord or traumatic brain injury. NHO causes pain, ankyloses, vascular and nerve compression and delays rehabilitation in this high‐morbidity patient group. The pathological mechanisms leading to NHO remain unknown and consequently there are no therapeutic options to prevent or reduce NHO. Genetically modified mouse models of rare genetic forms of heterotopic ossification (HO) exist, but their relevance to NHO is questionable. Consequently, we developed the first model of spinal cord injury (SCI)‐induced NHO in genetically unmodified mice. Formation of NHO, measured by micro‐computed tomography, required the combination of both SCI and localized muscular inflammation. Our NHO model faithfully reproduced many clinical features of NHO in SCI patients and both human and mouse NHO tissues contained macrophages. Muscle‐derived mesenchymal progenitors underwent osteoblast differentiation in vitro in response to serum from NHO mice without additional exogenous osteogenic stimuli. Substance P was identified as a candidate NHO systemic neuropeptide, as it was significantly elevated in the serum of NHO patients. However, antagonism of substance P receptor in our NHO model only modestly reduced the volume of NHO. In contrast, ablation of phagocytic macrophages with clodronate‐loaded liposomes reduced the size of NHO by 90%, supporting the conclusion that NHO is highly dependent on inflammation and phagocytic macrophages in soft tissues. Overall, we have developed the first clinically relevant model of NHO and demonstrated that a combined insult of neurological injury and soft tissue inflammation drives NHO pathophysiology. Copyright © 2015 Pathological Society of Great Britain and Ireland. Published by John Wiley & Sons, Ltd.