Oxygen (O2) is a substrate for energy production in the cell and is a rapid regulator of cellular metabolism. Recent studies have also implicated O2 and its signal transduction pathways in controlling cell proliferation, fate, and morphogenesis during the development of many tissues, including the nervous system. O2 tensions in the intact brain are much lower than in room air, and there is evidence that dynamic control of O2 availability may be a component of the in vivo neural stem cell (NSC) niche. At lower O2 tensions, hypoxia-inducible factor 1alpha (HIF1alpha) facilitates signal transduction pathways that promote self-renewal (e.g., Notch) and inhibits pathways that promote NSC differentiation or apoptosis (e.g., bone morphogenetic proteins). Increasing O2 tension degrades HIF1alpha, thus promoting differentiation or apoptosis of NSCs and progenitors. These dynamic changes in O2 tension can be mimicked to optimize ex vivo production methods for cell replacement therapies. Conversely, disrupted O2 availability may play a critical role in disease states such as stroke or brain tumor progression. Hypoxia during stroke activates precursor proliferation in vivo, while glioblastoma stem cells proliferate maximally in a more hypoxic environment than normal stem cells, which may make them resistant to certain anti-neoplastic therapies. These findings suggest that O2 response is central to the normal architecture and dynamics of NSC regulation and in the etiology and treatment of brain diseases.