The objective of this study was to determine the optimal oxygen conditions for chondrogenesis of ATDC5 mouse embryonic stem cells. Chondrogenesis was induced by addition of insulin and the cells were then cultured at different oxygen concentrations ranging from 1 to21%. At 2- to 3-day intervals, chondrocyte-specific extracellular matrix (ECM) production was monitored. Furthermore, the transcription of collagen II, an early-phase marker, and collagen X, a marker of hypertrophic conversion, was followed by real-time RT-PCR. Low oxygen concentrations between 1 and 9% inhibited chondrogenic conversion, as evidenced by reduced glycosaminoglycan deposition in the ECM in a manner proportional to the degree of hypoxia. Cells cultured at oxygen concentrations of 12 and 15% underwent a faster and higher degree of early-phase chondrogenesis when compared to control cells cultured at ambient air (21% O2). For the hypertrophic conversion of the ATDC5 cells, all degrees of hypoxia inhibited collagen X expression in a dose-dependent manner. Short-term culturing of the ATDC5 cells for 6 to 8 days at 12% oxygen with subsequent culturing at 21% for the remainder of the experiment resulted in maximal production of major ECM components, including collagen II and glycosaminoglycans. It is thus possible to modify in vitro chondrogenesis through modulation of the gas-phase composition.