Human neural precursor proliferation and potency is limited by senescence and loss of oligodendrocyte potential. We found that in vitro expansion of human postnatal brain CD133(+) nestin(+) precursors is enhanced at 5% oxygen, while raising oxygen tension to 20% depletes precursors and promotes astrocyte differentiation even in the presence of mitogens. Higher cell densities yielded more astrocytes regardless of oxygen tension. This was reversed by noggin at 5%, but not 20%, oxygen due to a novel repressive effect of low oxygen on bone morphogenetic protein (BMP) signaling. When induced to differentiate by mitogen withdrawal, 5% oxygen-expanded precursors generated 17-fold more oligodendrocytes than cells expanded in 20% oxygen. When precursors were expanded at 5% oxygen and then differentiated at 20% oxygen, oligodendrocyte maturation was further enhanced 2.5-fold. These results indicate that dynamic control of oxygen tension regulates different steps in fate and maturation and may be crucial for treating neurodegenerative diseases.