Composite nanofibrous scaffolds with various poly(epsilon-caprolactone) (PCL)/gelatin ratios (90:10, 80:20, 70:30, 60:40, 50:50wt.%) were successfully electrospun using diluted acetic and ethyl acetate mixture. The effects of this solvent system on the solution properties of the composites and its electrospinning properties were investigated. Viscosity and conductivity of the solutions, with the addition of gelatin, allowed for the electrospinning of uniform nanofibers with increasing hydrophilicity and degradation. Composite nanofibers containing 30 and 40wt.% gelatin showed an optimum combination of hydrophilicity and degradability and also maintained the structural integrity of the scaffold. Human mesenchymal stem cells (hMSCs) showed favorable interaction with and proliferation on, the composite scaffolds. hMSC proliferation was highest in the 30 and 40wt.% gelatin containing composites. Our experimental data suggested that PCL-gelatin composite nanofibers containing 30-40wt.% of gelatin and electrospun in diluted acetic acid-ethyl acetate mixture produced nanofiber scaffolds with optimum hydrophilicity, degradability, and bio-functionality for stem cell-based bone tissue engineering.