We generated a RUNX2-yellow fluorescent protein (YFP) reporter system to study osteogenic development from human embryonic stem cells (hESCs). Our studies demonstrate the fidelity of YFP expression with expression of RUNX2 and other osteogenic genes in hESC-derived osteoprogenitor cells, as well as the osteogenic specificity of YFP signal. In vitro studies confirm that the hESC-derived YFP(+) cells have similar osteogenic phenotypes to osteoprogenitor cells generated from bone-marrow mesenchymal stem cells. In vivo studies demonstrate the hESC-derived YFP(+) cells can repair a calvarial defect in immunodeficient mice. Using the engineered hESCs, we monitored the osteogenic development and explored the roles of osteogenic supplements BMP2 and FGF9 in osteogenic differentiation of these hESCs in vitro. Taken together, this reporter system provides a novel system to monitor the osteogenic differentiation of hESCs and becomes useful to identify soluble agents and cell signaling pathways that mediate early stages of human bone development.