The transition of macrophages from the pro-inflammatory M1 to the anti-inflammatory M2 phenotype is crucial for the progression of normal wound healing. Persistent M1 macrophages within the injury site may lead to an uncontrolled macrophage-mediated inflammatory response and ultimately a failure of the wound healing cascade, leading to chronic wounds. Mesenchymal stromal cells (MSCs) have been widely reported to promote M1 to M2 macrophage transition; however, it is unclear whether MSCs can drive this transition in the hypoxic environment typically observed in chronic wounds. Here we report on the effect of hypoxia (1% O2) on MSCs' ability to transition macrophages from the M1 to the M2 phenotype. While hypoxia had no effect on MSC secretion, it inhibited MSC-induced M1 to M2 macrophage transition, and suppressed macrophage expression and production of the anti-inflammatory mediator interleukin-10 (IL-10). These results suggest that hypoxic environments may impede the therapeutic effects of MSCs.