Articular cartilage is an avascular connective tissue that exhibits little intrinsic capacity for repair. Articular cartilage exists in a reduced oxygen (∼5%) environment in vivo; therefore, oxygen tension may be an important factor that regulates the metabolism of chondrocyte progenitors. A number of recent studies have developed tissue engineering approaches for promoting cartilage repair using undifferentiated progenitor cells seeded on biomaterial scaffolds, but little is known about how oxygen might influence these engineered tissues. Human adipose-derived adult stem (hADAS) cells isolated from the stroma of subcutaneous fat were suspended in alginate beads and cultured in control or chondrogenic media in either low oxygen (5%) or atmospheric oxygen tension (20%) for up to 14 days. Under chondrogenic conditions, low oxygen tension significantly inhibited the proliferation of hADAS cells, but induced a two-fold increase in the rate of protein synthesis and a three-fold increase in total collagen synthesis. Low oxygen tension also increased glycosaminoglycan synthesis at certain timepoints. Immunohistochemical analysis showed significant production of cartilage-associated matrix molecules, including collagen type II and chondroitin-4-sulfate. These findings suggest oxygen tension may play an important role in regulating the proliferation and metabolism of hADAS cells as they undergo chondrogenesis, and the exogenous control of oxygen tension may provide a means of increasing the overall accumulation of matrix macromolecules in tissue-engineered cartilage.