Prior studies showed that bone regeneration during distraction osteogenesis (DO) was dependent on vascular tissue development and that inhibition of VEGFR signaling diminished the expression of BMP2. A combination of micro-computed tomography (μCT) analysis of vascular and skeletal tissues, immunohistological and histological analysis of transgenic mice containing a BAC transgene in which β-galactosidase had been inserted into the coding region of BMP2 and qRT-PCR analysis, was used to examine how the spatial temporal expression of the morphogenetic signals that drive skeletal and vascular tissue development is coordinated during DO. These results showed that BMP2 expression was induced in smooth muscle and vascular endothelial cells of arteries and veins, capillary endothelial cells, hypertrophic chondrocytes and osteocytes. BMP2 was not expressed by lymphatic vessels or macrophages. Separate peaks of BMP2 mRNA expression were induced in the surrounding muscular tissues and the distraction gap and corresponded first with large vessel collateralization and arteriole remodeling followed by periods of angiogenesis in the gap region. Immunohistological and qRT-PCR analysis of VEGF receptors and ligands showed that mesenchymal cells, lining cells and chondrocytes, expressed VEGFA, although PlGF expression was only seen in mesenchymal cells within the gap region. On the other hand VEGFR2 appeared to be predominantly expressed by vascular endothelial and hematopoietic cells. These results suggest that bone and vascular tissue formation is coordinated via a mutually supporting set of paracrine loops in which blood vessels primarily synthesize the morphogens that promote bone formation while mesenchymal cells primarily synthesize the morphogens that promote vascular tissue formation.