Abstract: Melatonin, an endogenously produced neurohormone secreted by the pineal gland, has a variety of physiological functions and neuroprotective effects. It can modulate the functions of neural stem cells (NSCs) including proliferation and differentiation in embryonic brain tissue but its effect and mechanism on the stem cells in hypoxia remains to be explored. Here, we show that melatonin stimulates proliferation of NSCs during hypoxia. Additionally, it also promoted the differentiation of NSCs into neurons. However, it did not appear to exert an obvious effect on the differentiation of astrocytes. The present results have further shown that the promotional effect of NSCs proliferation by melatonin involved the MT1 receptor and increased phosphorylation of ERK1/2. The effect of melatonin on differentiation of NSCs is linked to altered expression of differentiation-related genes. In the light of these findings, it is suggested that melatonin may be beneficial as a supplement for treatment of neonatal hypoxic–ischemic brain injury for promoting the proliferation and differentiation of NSCs.