Skeletal muscle stem/progenitor cells, which give rise to terminally differentiated muscle, represent potential therapies for skeletal muscle diseases. Delineating the factors regulating these precursors will facilitate their reliable application in human muscle repair. During embryonic development and adult regeneration, skeletal muscle progenitors reside in low-O(2) environments before local blood vessels and differentiated muscle form. Prior studies established that low O(2) levels (hypoxia) maintained muscle progenitors in an undifferentiated state in vitro, although it remained unclear if progenitor differentiation was coordinated with O(2) availability in vivo. In addition, the molecular signals linking O(2) to progenitor differentiation are incompletely understood. Here we show that the muscle differentiation program is repressed by hypoxia in vitro and ischemia in vivo. Surprisingly, hypoxia can significantly impair differentiation in the absence of hypoxia-inducible factors (HIFs), the primary developmental effectors of O(2). In order to maintain the undifferentiated state, low O(2) levels block the phosphatidylinositol 3-kinase/AKT pathway in a predominantly HIF1α-independent fashion. O(2) deprivation affects AKT activity by reducing insulin-like growth factor I receptor sensitivity to growth factors. We conclude that AKT represents a key molecular link between O(2) and skeletal muscle differentiation.