Mesenchymal stem cells (MSCs), which can be isolated from bone marrow and other somatic tissues, are residing in an environment with relative low oxygen tension. The purpose of this study is to investigate the effects of hypoxia on MSCs, and we hypothesize that oxygen concentration regulates the intricate balance between cellular proliferation and commitment towards differentiation. In this study, human bone marrow-derived MSCs were cultured under hypoxia with 1% O(2). The proliferation ability of MSCs was increased after a 7-day hypoxic culture period. Migration assay showed that hypoxia enhanced the migration capabilities of MSCs. Moreover, expression of stemness genes Oct4, Nanog, Sall4 and Klf4 was increased under hypoxia. Furthermore, the differentiation ability of MSCs under hypoxia favored osteogenesis while adipogenesis was inhibited during a 4-week induction period. Cytokine antibody array analysis showed that a number of growth factors were up-regulated after a 7-day hypoxic incubation and the differential expression of growth factors may account for the increased proliferation and osteogenic potentials of MSCs under hypoxic condition. Taken together, hypoxia provides a favorable culture condition to promote proliferation as well as osteogenesis of MSCs through differential growth factor production.