Use of allograft in orthopaedic surgery is a well-established procedure. Ethylene Oxide sterilization is still controversial in bone banking because of its effect on osteoinductive properties of bone graft. Freeze drying is considered to be the best technique for allograft preparation and storage. High cost of equipment and its maintenance makes this method not feasible option in developing countries like India. This study involved setting up of a bone bank for the first time in JIPMER institute, Pondicherry, India. Cancellous bone was collected from 40 patients (femoral heads removed during joint replacements). They were cleaned thoroughly, chemically processed and sterilized with ethylene oxide gas and stored doubly packed. These were implanted at 11 patients with 14 non-unions, which required cancellous bone grafts. Patients were followed up clinically looking for infection and radiologically for graft incorporation. 85.7 % of grafted sites were united at the end of 12 months. Non-unions took average of 44.8 weeks for the union. Radiological union achieved by 12 months with average time of graft incorporation 44.8 weeks. In 8 cases the allografts were used to pack cavities. Healing occurred at an average of 29 weeks. In 4 patients with arthrodesis following excision of tumor one site failed to unite, one deep infection, which did not resolve with regular chemotherapy had an amputation. The rest of the sites healed at an average 54.8 weeks. This study shows ethylene oxide sterilized cancellous allograft suitable for packing cavities in treatment of benign bone lesions as well as in treatment of non-union. The osteoconductive property of bone allograft may not be affcted by the ethylene oxide sterilization. Achivement of union and a low rate of infection confirms efficacy of ethylene oxide as cost effective and reliable option for bone allograft sterilization.