What is the substance inside a bone that makes blood cells?

The substance in bones that produces blood cells is the bone marrow. Bone marrow is a jellylike substance made of fat, blood and stem cells that turn into various kinds of blood cells.

The same kind of stem cell makes all the different blood cells that a body needs. The scientific name for these stem cells is pluripotential hematopoietic stem cells. Once made, the blood cells seep from the marrow, through the bone, into the blood and then through the bloodstream. Bone marrow that actively makes blood cells is called red marrow. Bone marrow that no longer makes blood cells is called yellow marrow.