Autogenous bone is the gold standard material for bone grafting in craniofacial and orthopedic regenerative medicine. However, due to complications associated with harvesting donor bone, clinicians often use commercial graft materials that may lose their osteoinductivity due to processing. This study was aimed to functionalize one of these materials, anorganic bovine bone (ABB), with osteoinductive peptides to enhance regenerative capacity. Two peptides known to induce osteoblastic differentiation of mesenchymal stem cells were evaluated: (1) DGEA, an amino acid motif within collagen I and (2) a biomimetic peptide derived from bone morphogenic protein 2 (BMP2pep). To achieve directed coupling of the peptides to the graft surface, the peptides were engineered with a heptaglutamate domain (E7), which confers specific binding to calcium moieties within bone mineral. Peptides with the E7 domain exhibited greater anchoring to ABB than unmodified peptides, and E7 peptides were retained on ABB for at least 8 weeks in vivo. To assess the osteoinductive potential of the peptide-conjugated ABB, ectopic bone formation was evaluated utilizing a rat subcutaneous pouch model. ABB conjugated with full-length recombinant BMP2 (rBMP2) was also implanted as a model for current clinical treatments utilizing rBMP2 passively adsorbed to carriers. These studies showed that E7BMP2pep/ABB samples induced more new bone formation than all other peptides, and an equivalent amount of new bone as compared with rBMP2/ABB. A mandibular defect model was also used to examine intrabony healing of peptide-conjugated ABB. Bone healing was monitored at varying time points by positron emission tomography imaging with (18)F-NaF, and it was found that the E7BMP2pep/ABB group had greater bone metabolic activity than all other groups, including rBMP2/ABB. Importantly, animals implanted with rBMP2/ABB exhibited complications, including inflammation and formation of cataract-like lesions in the eye, whereas no side effects were observed with E7BMP2pep/ABB. Furthermore, histological analysis of the tissues revealed that grafts with rBMP2, but not E7BMP2pep, induced formation of adipose tissue in the defect area. Collectively, these results suggest that E7-modified BMP2-mimetic peptides may enhance the regenerative potential of commercial graft materials without the deleterious effects or high costs associated with rBMP2 treatments.