Healing or reconstruction of critical-sized bone defects is still challenging in orthopaedic practice. In this study, we developed a new approach to control the degradation and improve the bone regeneration of the AZ31 magnesium substrate, fabricated as mesh cage implants. Subsequently, bilayer nanocomposite coating was carried out using polycaprolactone (PCL) and nano-hydroxyapatite (nHA) by dip-coating and electrospinning. Lastly, the healing capacity of the implants was studied in New Zealand White (NZW) rabbit critical-sized femur bone defects. X-ray analysis showed the coated implant group bridged and healed the critical defects 100% during four weeks of post-implantation. Micro-computed tomography (Micro-CT) study showed higher total bone volume (21.10%), trabecular thickness (0.73), and total porosity (85.71%) with bilayer coated implants than uncoated. Our results showed that nanocomposite coated implants controlled the in vivo degradation and improved bioactivity. Hence, the coated implants can be used as a promising bioresorbable implant for critical segmental bone defect repair applications.