Bone grafts are widely used in bone regeneration to increase the speed and quality of new bone formation. While they are routinely characterized based on their biocompatible and bioactive properties, they also exert a profound impact on host immune responses, which in turn can display a significant effect on the healing and repair process. In this study, we investigated the role of macrophage behavior on deproteinized bovine bone matrix (DBBM, BioOss) to investigate their impact on creating either a pro- or anti-inflammatory microenvironment for tissue integration. RT-PCR and immunofluorescence staining results demonstrated the ability for RAW 264.7 cells to polarize toward M2 wound-healing macrophages in response to DBBM and positive control (IL-4). Interestingly, significantly higher expression of interleukin-10 and higher number of multinucleated giant cells (MNGCs) was observed in the DBBM group. Thereafter, conditioned media (CM) from macrophages cultured with DBBM seeded with MC3T3-E1 cells demonstrated a marked increase in osteoblast differentiation. Noteworthy, this effect was reversed by blocking IL10 with addition of IL10 antibody to CM from the DBBM macrophages. Furthermore, the use of dendritic cell specific transmembrane protein (DC-STAMP)-knockout to inhibit MNGC formation in the DBBM group resulted in a significant reduction in osteoblast differentiation, indication a pivotal role for MNGCs in biomaterials-induced osteogenesis. The results from this study indicate convincingly that the immune response of macrophages towards DBBM has a potent effect on osteoblast differentiation. Furthermore, DBBM promoted macrophage fusion and polarization towards an M2 wound-healing phenotype, further created a microenvironment favoring biomaterial-induced osteogenesis. © 2018 Wiley Periodicals, Inc. J Biomed Mater Res Part A: 106A: 1236-1246, 2018.