HU is a nucleoid-associated protein expressed in most eubacteria at a high amount of copies (tens of thousands). The protein is believed to bind across the genome to organize and compact the DNA. Most of the studies on HU have been carried out in a simple in vitro system, and to what extent these observations can be extrapolated to a living cell is unclear. In this study, we investigate the DNA binding properties of HU under conditions approximating physiological ones. We report that these properties are influenced by both macromolecular crowding and salt conditions. We use three different crowding agents (blotting grade blocker (BGB), bovine serum albumin (BSA), and polyethylene glycol 8000 (PEG8000)) as well as two different MgCl2 conditions to mimic the intracellular environment. Using tethered particle motion (TPM), we show that the transition between two binding regimes, compaction and extension of the HU protein, is strongly affected by crowding agents. Our observations suggest that magnesium ions enhance the compaction of HU–DNA and suppress filamentation, while BGB and BSA increase the local concentration of the HU protein by more than 4-fold. Moreover, BGB and BSA seem to suppress filament formation. On the other hand, PEG8000 is not a good crowding agent for concentrations above 9% (w/v), because it might interact with DNA, the protein, and/or surfaces. Together, these results reveal a complex interplay between the HU protein and the various crowding agents that should be taken into consideration when using crowding agents to mimic an in vivo system.