Background: Nonunions without hypertrophic callus formation has been identified based on X-ray findings, and we have defined it as non-hypertrophic nonunion. Bone morphogenetic protein-2 (BMP-2) is a well-known growth factor for bone regeneration, and Escherichia coli-derived BMP-2 (E-BMP-2) is considered a low-cost alternative to currently available products for humans. In this in vitro study, we examined the proliferation capability and osteogenic and chondrogenic differentiation potential of non-hypertrophic nonunion cells (NHNCs), and the effect of E-BMP-2 on them.Methods: We enrolled five patients with non-hypertrophic nonunion. NHNCs isolated from nonunion tissue sampled during surgery were cultured, passaged, and counted every 14 days. The surface antigen profiles of NHNCs were characterized using flow cytometry. Osteogenic differentiation capability was assessed using Alizarin Red S staining, alkaline phosphatase activity assay, and real-time reverse transcription-polymerase chain reaction (RT-PCR) after culturing in osteogenic medium. Furthermore, chondrogenic differentiation capability was assessed using Safranin-O staining and real-time RT-PCR after culturing in chondrogenic medium. To examine the effect of E-BMP-2 on the proliferation, osteogenic differentiation, and chondrogenic differentiation of NHNCs, they were cultured in each medium supplemented with 100 ng/mL E-BMP-2.Results: NHNCs were homogenous fibroblastic adherent cells and long-lived through at least 10 passages, with a slight decline. Flow cytometry revealed that the cells were consistently positive for mesenchymal stem cell-related markers CD73 and CD105, and negative for the hematopoietic markers CD14 and CD45. NHNCs were capable of differentiating into osteoblast lineage cells; however, they did not have strong calcification or sufficient chondrogenic differentiation capability. E-BMP-2 did not affect the proliferative capability of the cells but improved their osteogenic differentiation capability by increasing alkaline phosphatase activity and upregulating the gene expression of osterix, bone sialoprotein, and osteocalcin. Moreover, E-BMP-2 enhanced their chondrogenic differentiation capability by upregulating the gene expression of aggrecan and collagen type II.Conclusions: We showed for the first time that NHNCs had the capacity to differentiate into osteoblast-lineage cells, although the chondrogenic differentiation potential was poor. Local application of E-BMP-2 with preservation of nonunion tissue could be a treatment option for non-hypertrophic nonunion by promoting osteogenesis and chondrogenesis.