Co-culture of haematopoietic cells with a stromal cell layer does not mimic the physiological, micro-environmental niche, whose major feature is a low oxygen (O2) concentration. Thus, in order to study the effects of IL-17 in a context which better approximates the physiological state, we investigated its effects on cell expansion, colony-forming ability, and the phenotypical profile of normal, human blood CD34+ cells co-cultured for five days with MSC layers at various O2 concentrations (20%, 12.5% and 3% O2. We demonstrated that IL-17 enhances CD34+ and total CFC production during the five days of MSC/CD34+ co-culture. This effect depends upon the O2 concentration, reaching its maximum at 3% O2, and is more pronounced on erythroid progenitors (BFU-E). In addition, the stimulation of IL-6 production by IL-17 in MSC cultures and co-cultures is enhanced by low O2 concentration. The expression of some differentiation markers (CD34, CD13 and CD41) on haematopoietic cells in co-cultures also depends upon the oxygen concentration. Our results strengthen the concept that physiological levels of O2 (mistakenly called hypoxia), should be considered as an important environmental factor that significantly influences cytokine activity.