Low oxygen tension is thought to be an integral component of the human mesenchymal stem cell (hMSC) native bone marrow microenvironment. HMSC were cultured under physiologically relevant oxygen environments (2% O2) in three-dimensional (3D) constructs for up to 1 month in order to investigate the combined effects of chronic hypoxia and 3D architecture on hMSC tissue-development patterns. Hypoxic hMSC exhibited an extended lag phase in order to acclimatize to culture conditions. However, they subsequently proliferated continuously throughout the culture period, while maintaining significantly higher colony-forming unit capabilities and expressing higher levels of stem cell genes than hMSC cultured at 20% O2 (normoxic) conditions. Upon induction, hypoxic hMSC also expressed higher levels of osteoblastic and adipocytic differentiation markers than normoxic controls. Hypoxia induced increased total protein levels in hMSC throughout the culture period, as well as significantly different fibronectin expression patterns suggesting that oxygen levels can significantly affect tissue-development patterns. Importantly, hMSC maintained the ability to thrive in prolonged hypoxic conditions suggesting that hypoxia may be an essential element of the in vivo hMSC niche. Further studies are required to determine how variations in cellular characteristics and ECM expression impact on the physiological properties of the engineered tissue, yet these results strongly indicate that oxygen tension is a key parameter that influences the in vitro characteristics of hMSC and their development into tissues.