Formation of the native bone extracellular matrix (ECM) provides an attractive template for bone tissue engineering. The structural support and biological complexity of bone ECM are provided within a composite microenvironment that consists of an organic fibrous network reinforced by inorganic hydroxyapatite (HA) nanoparticles. Recreating this biphasic assembly, a bone ECM analogous scaffold comprising self-assembling peptide amphiphile (PA) nanofibers and interspersed HA nanoparticles was investigated. PAs were endowed with biomolecular ligand signaling using a synthetically inscribed peptide sequence (i.e., RGDS) and integrated with HA nanoparticles to form a biphasic nanomatrix hydrogel. It was hypothesized the biphasic hydrogel would induce osteogenic differentiation of human mesenchymal stem cells (hMSCs) and improve bone healing as mediated by RGDS ligand signaling within PA nanofibers and embedded HA mineralization source. Viscoelastic stability of the biphasic PA hydrogels was evaluated with different weight concentrations of HA for improved gelation. After demonstrating initial viability, long-term cellularity and osteoinduction of encapsulated hMSCs in different PA hydrogels were studied in vitro. Temporal progression of osteogenic maturation was assessed by gene expression of key markers. A preliminary animal study demonstrated bone healing capacity of the biphasic PA nanomatrix under physiological conditions using a critical size femoral defect rat model. The combination of RGDS ligand signaling and HA nanoparticles within the biphasic PA nanomatrix hydrogel demonstrated the most effective osteoinduction and comparative bone healing response. Therefore, the biphasic PA nanomatrix establishes a well-organized scaffold with increased similarity to natural bone ECM with the prospect for improved bone tissue regeneration. © 2011 American Chemical Society.