A particulate bone of defined sizes which has a unique property of direct bone osteoinduction without going through endochondral ossification stage is disclosed. The bone is not subjected to chemical extraction or decalcification. This allows for the retention of all physiologically active components of native bone. The invention hinges on the newly discovered ability of bone particles of defined sizes to exert osteoinduction by a pathway superior to and distinct from demineralized bone matrix and similar preparations.