The stem cell niche is a unique tissue microenvironment that regulates the self-renewal and differentiation of stem cells. Although several stromal cells and molecular pathways have been identified, the microenvironment of the stem cell niche remains largely unclear. Recent evidence suggests that stem cells are localized in areas with low oxygen. We have hypothesized that hypoxia maintains the undifferentiated phenotype of stem/precursor cells. In this report, we demonstrate that hypoxia reversibly arrests preadipocytes in an undifferentiated state. Consistent with this observation, hypoxia maintains the expression of pref-1, a key stem/precursor cell gene that negatively regulates adipogenic differentiation. We further demonstrate that the hypoxia-inducible factor-1 (HIF-1) constitutes an important mechanism for the inhibition of adipogenic differentiation by hypoxia. Our findings suggest that hypoxia in the stem cell niche is critical for the maintenance of the undifferentiated stem or precursor cell phenotype.