A demineralized bone putty composition comprises: (1) demineralized bone matrix (DBM); and (2) a lipid fraction selected from the group consisting of lecithin and a mixture of lecithin and triglycerides containing unsaturated fatty acids. The putty composition is moldable, biocompatible, slowly resorbable, and soluble in tissue fluids, and non-extrudable. The composition delivers a biologically active product to animals and humans that will enhance bone formation at sites where bone is lost, deficient, or present in suboptimal amounts. The composition can further comprise calcium, an antioxidant such as Vitamin E or Vitamin C, or a hydrophilic polymer such as methylcellulose or hydroxypropyl methylcellulose.