Mesenchymal stem cells (MSCs) are 'adult' multipotent cells that promote regeneration of injured tissues in vivo. However, differences in oxygenation levels between normoxic culture conditions (21% oxygen) and both the MSC niche (2-8% oxygen) and ischemic injury-induced oxidative stress conditions in vivo have resulted in low efficacy of MSC therapies in both pre-clinical and clinical studies. To address this issue, we examined the effectiveness of hypoxia preconditioning (2% oxygen) for enhancing the bioactivity and tissue-regenerative potential of adipose-derived MSCs. Hypoxia preconditioning enhanced the proliferative potential of MSCs by promoting the expression of normal cellular prion protein (PrPC). In particular, hypoxia preconditioning-mediated MSC proliferation was regulated by PrPC-dependent JAK2 and STAT3 activation. In addition, hypoxia preconditioning-induced PrPC regulated superoxide dismutase and catalase activity, and inhibited oxidative stress-induced apoptosis via inactivation of cleaved caspase-3. In a murine hindlimb ischemia model, hypoxia preconditioning enhanced the survival and proliferation of transplanted MSCs, ultimately resulting in improved functional recovery of the ischemic tissue, including the ratio of blood flow perfusion, limb salvage, and neovascularization. These results suggest that Hypo-MSC offer a therapeutic strategy for accelerated neovasculogenesis in ischemic diseases, and that PrPC comprises a potential target for MSC-based therapies.