A single application of recombinant human transforming growth factor β₁ (rhTGF‐β₁) adjacent to cartilage was found to induce bone formation in rabbit ear full‐thickness skin wounds. At doses that optimally promote soft tissue healing, 25–100 ng rhTGF‐β₁ per wound caused osseous tissue formation starting 21 days after wounding to reach a peak incidence and area of bone formation at day 42. Bone formation was followed by active remodeling, resulting in lower incidence and area of bone formation at days 56 and 70. The early phase of bone formation was located overlying the cartilage and involved perichondrial cells that appeared to differentiate directly into osteoblasts forming bone matrix without a cartilage precursor. Cartilage was replaced with bone at later time points. rhTGF‐β₁ was able to increase the ratio of osteoblasts to osteoclasts lining the trabecular surface of bone and thus increase the net amount of bone formation. The present studies suggest a potential therapeutic role for rhTGF‐β₁ in hard tissue repair.