We developed an innovative method to include quercetin into alpha-calcium sulphate hemihydrate/nano-hydroxyapatite (α-CSH/n-HA), to prepare a novel quercetin-containing α-CSH/n-HA composite (Q-α-CSH/n-HA). The physicochemical properties, and ability of Q-α-CSH/n-HA to promote cell proliferation, migration, and osteogenic differentiation of bone marrow stem cells (BMSCs) in vitro were examined. Further, the potential of Q-α-CSH/n-HA to promote bone defect repair was studied using a Sprague-Dawley rat model of critical tibial defects. Imaging was conducted by radiography and micro-CT, and bone defect repairs were observed by histopathological staining. Addition of quercetin clearly increased the porosity of the degraded composite, which elevated the cell proliferation rate, migration ability, osteogenesis differentiation, and mineralisation of BMSCs. Further, quercetin-containing composite increased the expression levels of OSX, RUNX2, OCN, ALP, BMP-2, OPN, BSP, SMAD2, and TGF-β in BMSCs, while it downregulated TNF-α. X-ray and micro-CT imaging showed that the quercetin-containing composite significantly enhanced bone defect repair and new bone in formation. Haematoxylin and eosin, Goldner, and Safranin O staining also showed that quercetin significantly increased new bone generation and promoted composite degradation and absorption. Moreover, immunofluorescence assay revealed that quercetin significantly increased the number of RUNX2/OSX/OCN-positive cells. Overall, our data demonstrate that Q-α-CSH/n-HA has excellent biocompatibility, bone conductivity, and osteo-induction performance in vitro and mediates enhanced overall repair effects and bone reconstruction in vivo, indicating that it is a promising artificial bone graft to promote bone regeneration.