Hypoxic microenvironment plays an important role in determining stem cell fates. However, it is controversial to which direction between self-renewal and differentiation the hypoxia drives the stem cells. Here, we investigated whether a short exposure to hypoxia (termed ‘hypoxic-priming’) efficiently directed and promoted mouse embryonic stem cells (mESCs) to differentiate into vascular-lineage. During spontaneous differentiation of embryoid bodies (EBs), hypoxic region was observed inside EB spheroids even under normoxic conditions. Indeed, hypoxia-primed EBs more efficiently differentiated into cells of vascular-lineage, than normoxic EBs did. We found that hypoxia suppressed Oct4 expression via direct binding of HIF-1 to reverse hypoxia-responsive elements (rHREs) in the Oct4 promoter. Furthermore, vascular endothelial growth factor (VEGF) was highly upregulated in hypoxia-primed EBs, which differentiated towards endothelial cells in the absence of exogenous VEGF. Interestingly, this differentiation was abolished by the HIF-1 or VEGF blocking. In vivo transplantation of hypoxia-primed EBs into mice ischemic limb elicited enhanced vessel differentiation. Collectively, our findings identify that hypoxia enhanced ESC differentiation by HIF-1-mediated inverse regulation of Oct4 and VEGF, which is a novel pathway to promote vascular-lineage differentiation.