Nanohydroxyapatite (nanoHA) is a well-established synthetic bone substitute with excellent osteoconduction and osteointegration. However, brittleness coupled with slow degradation curtails its load-bearing and bone regeneration potential, respectively. To address these limitations, nanoHA composite matrix reinforced with electrospun fibrous yarns was fabricated and tested in vitro and in vivo. Different weight percentages (5, 10, 15 wt%) and varying lengths (short and continuous) of poly(l-lactic acid) yarns were randomly dispersed in a gelatinous matrix containing nanoHA. This significantly improved the compressive strength as well as work of fracture, especially for continuous yarns at high weight percentages (10 and 15 wt%). Incorporation of yarns did not adversely affect the pore size (50-350 μm) or porosity of the scaffolds as well as the in vitro cellular response. Finally, when tested in a critical-sized femoral segmental defect in rat, the nanocomposite scaffolds induced osteoblast cell infiltration at 2 months that subsequently underwent increased mature lamellar bone formation at 4 months, in both the mid and peripheral defect regions. Histomorphometric analysis demonstrated that new bone formation and biomaterial degradation were significantly enhanced in the composite scaffold when compared to commercially available HA. Overall, the composite matrix reinforced with electrospun yarns proved to be a potential bone substitute having an appropriate balance between mechanical strength, porosity, biodegradation, and bone regeneration ability.