Local or systemic stem cell delivery has the potential to promote repair of a variety of damaged or degenerated tissues. Although various stem cell sources have been investigated for bone repair, few comparative reports exist, and cellular distribution and viability postimplantation remain key issues. In this study, we quantified the ability of tissue-engineered constructs containing either human fetal or adult stem cells to enhance functional repair of nude rat critically sized femoral defects. After 12 weeks, defects treated with cell-seeded polymer scaffolds had significantly higher bone ingrowth and torsional strength compared to those receiving acellular scaffolds, although there were no significant differences between the cell sources. Next, stem cells were labeled with fluorescent quantum dots (QDs) in an attempt to noninvasively track their distribution after delivery on scaffolds. Clear fluorescence was observed at implantation sites throughout the study;​ however, beginning 7–10 days after surgery, signals were also observed at contralateral sites treated with acellular QD-free scaffolds. Although immunostaining for human nuclei revealed retention of some cells at the implantation site, no human cells were detected in the control limb defects. Additional histological analysis of implantation and control defect tissues revealed macrophages containing endocytosed QDs. Furthermore, QD-labeling appeared to diminish transplanted cell function resulting in reduced healing responses. In summary, augmentation of polymeric scaffolds with stem cells derived from fetal and adult tissues significantly enhanced healing of large segmental bone defects;​ however, QD labeling of stem cells eliminated the observed therapeutic effect and failed to conclusively track stem cell location long-term in vivo.