Methods of making and osteoinductive compositions are provided. The method includes mixing isolated periosteum tissue with a demineralized bone matrix to form the osteoinductive composition. The periosteum tissue is isolated from the surface of large bones such as femur, tibia, humerus or a mixture thereof. The demineralized bone matrix can include a plurality of surface demineralized or fully demineralized bone fibers, bone chips, bone particles or mixtures thereof. In the osteoinductive composition the substantially isolated periosteum tissue is from about 0.5% wt. to about 10% wt. A method for repairing a bone defect is also provided. The method of treatment includes applying to the bone defect a substantially effective amount of a mixture of isolated periosteum tissue and demineralized bone matrix.
