We have studied the effect of low oxygen levels (2% O₂), or hypoxia, in the expansion and neural commitment of mouse embryonic stem (ES) cells. When ES cells were maintained in culture with leukemia inhibitory factor (LIF), cell proliferation was reduced at low oxygen levels and a simultaneous reduction in cell viability was also observed. Morphological changes and different cell cycle patterns also occurred, suggesting some early differentiation under hypoxic conditions. However, when cells were maintained in a ground state of pluripotency, by inhibition of autocrine FGF4/ERK and GSK3 signaling, hypoxia did not affect cell proliferation, and did not induce early differentiation. Nevertheless, during neural commitment, low oxygen tension exerted a positive effect on early differentiation of ES cells, resulting in a faster commitment towards neural progenitors. Overall our results demonstrate the need to specifically regulate the oxygen content, especially hypoxia, along with other culture conditions, when developing new strategies for ES cell expansion and/or controlled differentiation.