Regenerative medicine is increasingly important in clinical practice. Ligamentum flava (LF) are typically removed during spine-related surgeries. LF may be a source of cells for spinal fusion that is conducted using tissue engineering techniques. In this investigation, LF cells of rabbits were isolated and then characterized by flow cytometry, morphological observation, and immunofluorescence staining. The LF cells were also cultivated in polyethylene (glycol) diacrylate (PEGDA) hydrogels that incorporated bone morphogenetic protein-2 (BMP-2) growth factor, to evaluate their proliferation and secretion of ECM and differentiation in vitro. The experimental results thus obtained that the proliferation, ECM secretion, and differentiation of the PEGDA-BMP-2 group exceeded those of the PEGDA group during the period of cultivation. The mineralization and histological staining results differed similarly. A nude mice model was utilized to prove that LF cells on hydrogels could undergo osteogenic differentiation in vivo. These experimental results also revealed that the PEGDA-BMP-2 group had better osteogenic effects than the PEGDA group following a 12 weeks after transplantation. According to all of these experimental results, LF cells are a source of cells for spinal fusion and PEGDA-BMP-2 hydrogel is a candidate biomaterial for spinal fusion by tissue engineering.