OBJECTIVE Recent evidence indicates that low oxygen tension (pO2) or hypoxia controls the differentiation of several cell types during development. Variations of pO2 are mediated through the hypoxia-inducible factor (HIF), a crucial mediator of the adaptative response of cells to hypoxia. The aim of this study was to investigate the role of pO2 in β-cell differentiation. RESEARCH DESIGN AND METHODS We analyzed the capacity of β-cell differentiation in the rat embryonic pancreas using two in vitro assays. Pancreata were cultured either in collagen or on a filter at the air/liquid interface with various pO2. An inhibitor of the prolyl hydroxylases, dimethyloxaloylglycine (DMOG), was used to stabilize HIF1α protein in normoxia. RESULTS When cultured in collagen, embryonic pancreatic cells were hypoxic and expressed HIF1α and rare β-cells differentiated. In pancreata cultured on filter (normoxia), HIF1α expression decreased and numerous β-cells developed. During pancreas development, HIF1α levels were elevated at early stages and decreased with time. To determine the effect of pO2 on β-cell differentiation, pancreata were cultured in collagen at increasing concentrations of O2. Such conditions repressed HIF1α expression, fostered development of Ngn3-positive endocrine progenitors, and induced β-cell differentiation by O2 in a dose-dependent manner. By contrast, forced expression of HIF1α in normoxia using DMOG repressed Ngn3 expression and blocked β-cell development. Finally, hypoxia requires hairy and enhancer of split (HES)1 expression to repress β-cell differentiation. CONCLUSIONS These data demonstrate that β-cell differentiation is controlled by pO2 through HIF1α. Modifying pO2 should now be tested in protocols aiming to differentiate β-cells from embryonic stem cells.