Regeneration of bone by delivery of bone morphogenetic proteins (BMPs) from implantable scaffolds is a promising alternative to the existing autologous bone grafting procedures. Hydrogels are used extensively in biomaterials as delivery systems for different growth factors. However, a controlled release of the growth factors is necessary to induce bone formation, which can be accomplished by various chemical functionalities. Herein we demonstrate that functionalization of a hyaluronan (HA) hydrogel with covalently linked bisphosphonate (BP) ligands provides efficient sequestering of BMP-2 in the resulting HA-BP hydrogel. The HA-BP hydrogel was investigated in comparison with its analogue lacking BP groups (HA hydrogel). While HA hydrogel released 100% of BMP-2 over two weeks, less than 10% of BMP-2 was released from the HA-BP hydrogel for the same time. We demonstrate that the sequestered growth factor can still be released by enzymatic degradation of the HA-BP hydrogel. Most importantly, entrapment of BMP-2 in HA-BP hydrogel preserves the growth factor bioactivity, which was confirmed by induction of osteogenic differentiation of mesenchymal stem cells (MSCs) after the cells incubation with the enzymatic digest of the hydrogel. At the same time, the hydrogels degradation products were not toxic to MSCs and osteoblasts. Furthermore, BP-functionalization of HA hydrogels promotes adhesion of the cells to the surface of HA hydrogel. Altogether, the present findings indicate that covalent grafting of HA hydrogel with BP groups can alter the clinical effects of BMPs in bone tissue regeneration.