Recent studies suggest that oxygen tension has a great impact on the osteogenic differentiation capacity of mesenchymal cells derived from adipose tissue: reduced oxygen impedes osteogenesis. We have found that expansion of mouse adipose-derived stromal cells (mASCs) in reduced oxygen tension (10%) results in increased cell proliferation along with induction of histone deacetylase (HDAC) activity. In this study, we utilized two HDAC inhibitors (HDACi), sodium butyrate (NaB) and valproic acid (VPA), and studied their effects on mASCs expanded in various oxygen tensions (21%, 10%, and 1% O(2)). Significant growth inhibition was observed with NaB or VPA treatment in each oxygen tension. Osteogenesis was enhanced by treatment with NaB or VPA, particularly in reduced oxygen tensions (10% and 1% O(2)). Conversely, adipogenesis was decreased with treatments of NaB or VPA at all oxygen tensions. Finally, NaB- or VPA-treated, reduced oxygen tension-exposed (1% O(2)) ASCs were grafted into surgically created mouse tibial defects and resulted in significantly increased bone regeneration. In conclusion, HDACi significantly promote the osteogenic differentiation of mASCs exposed to reduced oxygen tension; HDACi may hold promise for future clinical applications of ASCs for skeletal regeneration.