The objective of this study was to improve the efficacy of polycaprolactone/bioglass (PCL/BG) bone substitute using demineralized bone matrix (DBM) or calcium sulfate (CS) as a third component. Composite discs involving either DBM or CS were prepared by compression moulding. Bioactivity of discs was evaluated by energy dispersive X-ray spectroscopy (ESCA) and scanning electron microscopy (SEM) following simulated body fluid incubation. The closest Calcium/Phosphate ratio to that of hydroxyl carbonate apatite crystals was observed for PCL/BG/DBM group (1.53) after 15 day incubation. Addition of fillers increased microhardness and compressive modulus of discs. However, after 4 and 6-week PBS incubations, PCL/BG/DBM discs showed significant decrease in modulus (from 266.23 to 54.04 and 33.45 MPa, respectively) in parallel with its highest water uptakes (36.3 and 34.7%). Discs preserved their integrity with only considerable weight loss (7.5-14.5%) in PCL/BG/DBM group. In vitro cytotoxicity tests showed that all discs were biocompatible. Composites were implanted to defects on rabbit humeri. After 7 weeks, new tissue formation and mineralization at bone-implant interface were observed for all implants. Bone mineral densities at interface were higher than that of implant site and negative controls (defects left empty) but lower than healthy bone level. However, microhardness of implant sites was higher than in vitro results indicating in vivo mineralization of implants. Addition of DBM or CS resulted with higher microhardness values at interface region (ca. 650 mu m from implant) compared to PCL/BG and negative control. Histological studies revealed that addition of DBM enhanced bone formation around and into implant while CS provided cartilage tissue formation around the implant. From these results, addition of DBM or CS could be suggested to improve bone healing efficacy of PCL/BG composites.