Background Skeletal muscle-derived stem cells (SC) have become a promising approach for investigating myogenic differentiation and optimizing tissue regeneration. Muscle regeneration is performed by SC, a self-renewal cell population underlying the basal lamina of muscle fibers. Here, we examined the impact of hypoxia condition on the regenerative capacity of SC either in their native microenvironment or via isolation in a monolayer culture using ectopic differentiation inductions. Furthermore, the effect of low oxygen tension on myogenic differentiation protocols of the myoblasts cell line C2C12 was examined. Methods Hind limb muscles of wild type mice were processed for both SC/fiber isolation and myoblast extraction using magnetic beads. SC were induced for myogenic, adipogenic and osteogenic commitments under normoxic (21% O2) and hypoxic (3% O2) conditions. SC proliferation and differentiation were evaluated using histological staining, immunohistochemistry, morphometric analysis and RT-qPCR. The data were statistically analyzed using ANOVA. Results The data revealed enhanced SC proliferation and motility following differentiation induction after 48 h under hypoxia. Following myogenic induction, the number of undifferentiated cells positive for Pax7 were increased at 72 h under hypoxia. Hypoxia upregulated MyoD and downregulated Myogenin expression at day-7 post-myogenic induction. Hypoxia promoted both SC adipogenesis and osteogenesis under respective induction as shown by using Oil Red O and Alizarin Red S staining. The expression of adipogenic markers; peroxisome proliferator activated receptor gamma (PPARγ) and fatty acid-binding protein 4 (FABP4) were upregulated under hypoxia up to day 14 compared to normoxic condition. Enhanced osteogenic differentiation was detected under hypoxic condition via upregulation of osteocalcin and osteopontin expression up to day 14 as well as, increased calcium deposition at day 21. Hypoxia exposure increases the number of adipocytes and the size of fat vacuoles per adipocyte compared to normoxic culture. Combining the differentiation medium with dexamethasone under hypoxia improves the efficiency of the myogenic differentiation protocol of C2C12 by increasing the length of the myotubes. Conclusions Hypoxia exposure increases cell resources for clinical applications and promotes SC multipotency and thus beneficial for tissue regeneration.