The ideally engineered bone should have similar structural and functional properties to the native tissue. Although structural integrity is critical for functional bone regeneration, we know less about modulating the structural properties of the engineered bone elicited by bone morphogenetic protein (BMP) than efficacy and safety. Erythropoietin (Epo), a primary erythropoietic hormone, has been used to augment blood transfusion in orthopedic surgery. However, the effects of Epo on bone regeneration are not well known. Here, we determined the role of Epo in BMP2-induced bone regeneration using a cranial defect model. Epo administration improved the quality of BMP2-induced bone and more closely resembled natural cranial bone with a higher bone volume (BV) fraction and lower marrow fraction when compared with BMP2 treatment alone. Epo increased red blood cells (RBCs) in peripheral blood and also increased hematopoietic and mesenchymal stem cell (MSC) populations in bone marrow. Consistent with our previous work, Epo increased osteoclastogenesis both in vitro and in vivo. Results from a metatarsal organ culture assay suggested that Epo-promoted osteoclastogenesis contributed to angiogenesis because angiogenesis was blunted when osteoclastogenesis was blocked by alendronate (ALN) or osteoprotegerin (OPG). Earlier calcification of BMP2-induced temporary chondroid tissue was observed in the Epo+BMP group compared to BMP2 alone. We conclude that Epo significantly enhanced the outcomes of BMP2-induced cranial bone regeneration in part through its actions on osteoclastogenesis and angiogenesis.