Hydroxyappatite-β-tricalciumphosphate (HA/β-TCP) was reinforced with poly(D,L)-lactic acid (PDLLA) to overcome its weak mechanical properties. Two substitutes with porosities of 77% and 81% HA/β-TCP reinforced with 12 wt % PDLLA were tested in compression. The effects of allograft, substitute (HA/β-TCP-PDLLA), Colloss®E, and combination of substitute with Colloss®E on bone formation in vivo were evaluated. Cylindrical critical size defects were created at distal femoral condyles bilaterally in sheep. Titanium implant with concentric gap filling with one of the four materials was inserted. After 9 weeks, the sheep were sacrificed. Implants with surrounding bone were harvested and sectioned into two parts: one for microcomputed tomography scanning and push-out test, and one for histomorphometry. The 77% HA/β-TCP reinforced with PDLLA had similar mechanical properties to human cancellous bone and was significantly stronger than the HA/β-TCP without PDLLA. Microarchitecture of gap mass was significantly changed after implantation for all groups. Allograft had stronger shear mechanical properties than the other three groups, whereas there were no significant differences between the other three groups. Significant new bone formation could be seen in vivo in all four groups and there were no significant differences between them. The PDLLA-reinforced substitute seems to be good alternative substitute material for bone healing in sheep. Further investigations should be performed to validate this novel substitute material.