The authors investigated poly(lactide-co-glycolide) (PLGA) capsule and collagen composite system for antibiotics and bone cells delivery to treat infected bone defects. Poly(lactide-co-glycolide) was mixed with vancomycin and hot compressing molded to form an antibiotic capsule. Rabbit mesenchymal stem cells (MSCs) were entrapped in collagen gel phase and dispersed throughout the void volume of capsule. In vitro study, the composite systems were cultured in complete or osteogenic medium for 21 days. The profiles of vancomycin released from the systems were evaluated using the high-performance liquid chromatography method. Relative activity of vancomycin against Staphylococcus aureus was determined by an antibiotic disk diffusion method. The expression of osteogenic gene was determined by reverse-transcription polymerase chain reaction. The alkaline phosphatase activity and calcium level of the MSCs were assessed. Analytical results demonstrated that the concentrations of vancomycin eluted from the composite system were above the minimal inhibitory concentration for 21 days. Sample inhibition zone was 10 to 24 mm, and the relative activity was 17.6% to 100%. mRNA of Cbfa1 and osteocalcin were detected, and increased alkaline phosphatase activity and calcium levels were noted. In in vivo investigation, the PKH 26-labeled MSCs and composite systems were implanted in the distal femoral cavities of four rabbits. The local concentration of vancomycin was above the minimal inhibitory concentration for 56 days. Sample inhibition zone was 9 mm to 24 mm, and the relative activity was 11.8% to 100%. Implanted PKH 26-labeled MSCs were identified in the newly formed bony trabeculae in specimens at 2 and 4 months after implantation. The results offer a potential approach to meet clinical requirements in the treatment of infected bone defects.