The bone marrow (BM) microenvironment or the hematopoietic stem cell (HSC) niche is normally hypoxic, which maintains HSC quiescence. Paradoxically, transplanted HSCs rapidly proliferate in this niche. Pretransplant myelosuppression results in a substantial rise in oxygen levels in the marrow microenvironment due to reduced cellularity and consequent low oxygen consumption. Therefore, it may be construed that the rapid proliferation of the engrafted HSCs in the BM niche is facilitated by the transiently elevated oxygen tension in this milieu during the “engraftment window.” To determine whether oxygen tension dominantly affects the regeneration of hematopoiesis in the BM niche, we created an “oxygen-independent hypoxic niche” by treating BM-derived mesenchymal stromal cells (BMSCs) with a hypoxia-mimetic compound, cobalt chloride (CoCl2) and cocultured them with BM-derived HSC-enriched cells under normoxic conditions (HSCs; CoCl2-cocultures). Cocultures with untreated BMSCs incubated under normoxia (control- cocultures) or hypoxia (1% O2; hypoxic-cocultures) were used as comparators. Biochemical analyses showed that though, both CoCl2 and hypoxia evoked comparable signals in the BMSCs, the regeneration of hematopoiesis in their respective cocultures was radically different. The CoCl2-BMSCs supported robust hematopoiesis, while the hypoxic-BMSCs exerted strong inhibition. The hematopoiesis-supportive ability of CoCl2-BMSCs was abrogated if the CoCl2-cocultures were incubated under hypoxia, demonstrating that the prevalent oxygen tension in the milieu dominantly affects the outcome of the HSC-BM niche interactions. Our data suggest that pharmacologically delaying the reestablishment of hypoxia in the BM may boost post-transplant regeneration of hematopoiesis.