Human embryonic stem (hES) cells are typically maintained on mouse embryonic fibroblast (MEF) feeders or with MEF-conditioned medium. However, these xenosupport systems greatly limit the therapeutic applications of hES cells because of the risk of cross-transfer of animal pathogens. The stem cell niche is a unique tissue microenvironment that regulates the self-renewal and differentiation of stem cells. Recent evidence suggests that stem cells are localized in the microenvironment of low oxygen. We hypothesized that hypoxia could maintain the undifferentiated phenotype of embryonic stem cells. We have co-cultured a human embryonic cell line with human fetal liver stromal cells (hFLSCs) feeder cells stably expressing hypoxia-inducible factor-1 alpha (HIF-1alpha), which is known as the key transcription factor in hypoxia. The results suggested HIF-1alpha was critical for preventing differentiation of hES cells in culture. Consistent with this observation, hypoxia upregulated the expression of Nanog and Oct-4, the key factors expressed in undifferentiated stem cells. We further demonstrated that HIF-1alpha could upregulate the expression of some soluble factors including bFGF and SDF-1alpha, which are released into the microenvironment to maintain the undifferentiated status of hES cells. This suggests that the targets of HIF-1alpha are secreted soluble factors rather than a cell-cell contact mechanism, and defines an important mechanism for the inhibition of hESCs differentiation by hypoxia. Our findings developed a transgene feeder co-culture system and will provide a more reliable alternative for future therapeutic applications of hES cells.