During mammalian embryogenesis, the early embryo grows in a relatively hypoxic environment due to a restricted supply of oxygen. The molecular mechanisms underlying modulation of self-renewal and differentiation of mouse embryonic stem cells (mESCs) under such hypoxic conditions remain to be established. Here, we show that hypoxia inhibits mESC self-renewal and induces early differentiation in vitro, even in the presence of leukemia inhibitory factor (LIF). These effects are mediated by down-regulation of the LIF-STAT3 signaling pathway. Under conditions of hypoxia, hypoxia-inducible factor-1alpha (HIF-1alpha) suppresses transcription of LIF-specific receptor (LIFR) by directly binding to the reverse hypoxia-responsive element located in the LIFR promoter. Ectopic expression and small interference RNA knockdown of HIF-1alpha verified the inhibitory effect on LIFR transcription. Our findings collectively suggest that hypoxia-induced in vitro differentiation of mESCs is triggered, at least in part, by the HIF-1alpha-mediated suppression of LIF-STAT3 signaling.