The trace element strontium (Sr) enhances new bone formation. However, delivering Sr, like other materials, in a sustained manner from a ceramic bone graft substitute (BGS) is difficult. We developed a novel ceramic BGS, polyphosphate dicalcium phosphate dehydrate (P‐DCPD), which delivers embedded drugs in a sustained pattern. This study assessed the in vitro and in vivo performance of Sr‐doped P‐DCPD. In vitro P‐DCPD and 10%Sr‐P‐DCPD were nontoxic and eluents from 10%Sr‐P‐DCPD significantly enhanced osteoblastic MC3T3 cell differentiation. A sustained, zero‐order Sr release was observed from 10%Sr‐P‐DCPD for up to 70 days. When using this BGS in a rat calvaria defect model, both P‐DCPD and 10% Sr‐P‐DCPD were found to be biocompatible and biodegradable. Histologic data from decalcified and undecalcified tissue showed that 10%Sr‐P‐DCPD had more extensive new bone formation compared with P‐DCPD 12‐weeks after surgery and the 10%Sr‐P‐DCPD had more organized new bone and much less fibrous tissue at the defect margins. The new bone was formed on the surface of the degraded ceramic debris within the bone defect area. P‐DCPD represented a promising drug‐eluting BGS for repair of critical bone defects.