Osteogenic differentiation of human mesenchymal stem cells (hMSCs) into osteoblasts is a prerequisite for subsequent bone formation. Numerous studies have explored osteogenic differentiation under standard tissue culture conditions, which usually employ 21% of oxygen. However, bone precursor cells such as hMSCs reside in stem cell niches of low-oxygen atmospheres. Furthermore, they are subjected to low oxygen concentrations when cultured on three-dimensional scaffolds in vitro, and even more so after transplantation when vascularization has yet to be established. Similarly, hMSCs are exposed to low oxygen in the fracture microenvironment following bony injury. Recent studies revealed that hypoxic preconditioning improves cellular engraftment and survival in low-oxygen atmospheres. In our study we investigated the osteogenic differentiation potential of hMSCs under 2% O(2) (hypoxia) in comparison to a standard tissue culture oxygen atmosphere of 21% (normoxia). We assessed the osteogenic differentiation of hMSCs following hypoxic preconditioning to address whether this pretreatment is beneficial for subsequent differentiation processes as well. To validate our findings we carefully characterized the extent of hypoxia exerted and its effect on cell survival and proliferation. We found that hMSCs proliferate better if cultured under 2% of oxygen. We confirmed that osteogenic differentiation of hMSCs is indeed inhibited if osteogenic induction is carried out under constant hypoxia. Finally, we showed for the first time that hypoxic preconditioning of hMSCs prior to osteogenic induction restores osteogenic differentiation of hMSCs under hypoxic conditions. Collectively, our results indicate that maintaining constant levels of oxygen improves the osteogenic potential of hMSCs and suggest that low oxygen concentrations may preserve the stemness of hMSCs. In addition, our data support the hypothesis that if low-oxygen atmospheres are expected at the site of implantation, hypoxic pretreatment may be beneficial for the cells' subsequent in vivo performance.