The management and reconstruction of critical-sized segmental bone defects remain a major clinical challenge for orthopaedic clinicians and surgeons. In particular, regenerative medicine approaches that involve incorporating stem cells within tissue engineering scaffolds have great promise for fracture management. This narrative review focuses on the primary components of bone tissue engineering-stem cells, scaffolds, the microenvironment, and vascularisation-addressing current advances and translational and regulatory challenges in the current landscape of stem cell therapy for critical-sized bone defects. To comprehensively explore this research area and offer insights for future treatment options in orthopaedic surgery, we have examined the latest developments and advancements in bone tissue engineering, focusing on those of clinical relevance in recent years. Finally, we present a forward-looking perspective on using stem cells in bone tissue engineering for critical-sized segmental bone defects.