Fracture healing is highly sensitive to mechanical conditions;​ however, the effects of mechanical loading on large bone defect regeneration have not been evaluated. In this study, we investigated the effects of functional loading on repair of critically sized segmental bone defects. About 6‐mm defects were created in rat femora, and each defect received 5 µg recombinant human bone morphogenetic protein‐2 (rhBMP‐2), delivered in alginate hydrogel. Limbs were stabilized by either stiff fixation plates for the duration of the study or compliant plates that allowed transfer of compressive ambulatory loads beginning at week 4. Healing was assessed by digital radiography, microcomputed tomography, mechanical testing, histology, and finite element modeling. Loading significantly increased regenerate bone volume and average polar moment of inertia. The response to loading was location‐dependent with the polar moment of inertia increased at the proximal end of the defect but not the distal end. As a result, torsional stiffness was 58% higher in the compliant plate group, but failure torque was not altered. In single samples assessed for histology from each group, a qualitatively greater amount of cartilage and a lesser degree of remodeling to lamellar bone occurred in the loaded group compared to the stiff plate group. Finally, principal strain histograms, calculated by FE modeling, revealed that the compliant plate samples had adapted to more efficiently distribute loads in the defects. Together, these data demonstrate that functional transfer of axial loads alters BMP‐induced large bone defect repair by increasing the amount and distribution of bone formed within the defect.