Growth factor delivery using acellular matrices presents a promising alternative to current treatment options for bone repair in critical-size injuries. However, supra-physiological doses of the factors can introduce safety concerns that must be alleviated, mainly by sustaining delivery of smaller doses using the matrix as a depot. We developed an acellular, biodegradable hydrogel implant composed of poly(ethylene glycol) (PEG) and denatured albumin to be used for sustained delivery of bone morphogenic protein-2 (BMP2). In this study, poly(ethylene glycol)-albumin (PEG-Alb) hydrogels were produced and loaded with 7.7 μg/mL of recombinant human BMP2 (rhBMP2) to be tested for safety and performance in a critical-size long-bone defect, using a rodent model. The hydrogels were formed ex situ in a 5 mm long cylindrical mold of 3 mm diameter, implanted into defects made in the tibia of Sprague-Dawley rats and compared to non-rhBMP2 control hydrogels at 13 weeks following surgery. The hydrogels were also compared to the more established PEG-fibrinogen (PEG-Fib) hydrogels we have tested previously. Comprehensive in vitro characterization as well as in vivo assessments that include: histological analyses, including safety parameters (i.e., local tolerance and toxicity), assessment of implant degradation, bone formation, as well as repair tissue density using quantitative microCT analysis were performed. The in vitro assessments demonstrated similarities between the mechanical and release properties of the PEG-Alb hydrogels to those of the PEG-Fib hydrogels. Safety analysis presented good local tolerance in the bone defects and no signs of toxicity. A significantly larger amount of bone was detected at 13 weeks in the rhBMP2-treated defects as compared to non-rhBMP2 defects. However, no significant differences were noted in bone formation at 13 weeks when comparing the PEG-Alb-treated defects to PEG-Fib-treated defects (with or without BMP2). The study concludes that hydrogel scaffolds made from PEG-Alb containing 7.7 μg/mL of rhBMP2 are effective in accelerating the bridging of boney defects in the tibia.