Bone structure. Computer artwork showing the interior structure of bone. The outside of the bone is covered by a membrane (peeled away at top) called the periosteum. The outer layer of bone is compact, or cortical bone, which contains blood and lymph vessels and nerves. In the centre is spongy, or cancellous bone, which contains bone marrow (pink) the site of blood cell production. Spongy bone is characterised by a honeycomb arrangement, comprising a network of trabeculae.