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Bone marrow-derived mesenchymal stem cell (BM-MSC) transplantation has been demonstrated to be an effective way of augmenting angiogenesis of ischemic tissue. The low oxygen conditions in ischemic tissue directly affect the biological behavior of engrafted cells. However, to date, the mechanism through which hypoxia regulates self-renewal, differentiation and paracrine function of BM-MSCs remains unclear. Clarification of this mechanism would be beneficial to the use of stem cell-based therapy. The PI3K/AKT pathway has been extensively investigated for its role in cell proliferation, cell transformation, paracrine function and angiogenesis. The present study aimed to analyze the role of PI3K/AKT pathway in hypoxia-induced proliferation of BM-MSCs and their differentiation into endothelial cells in vitro by the application of LY294002, a PI3K/AKT pathway inhibitor, with cells cultured in normoxia serving as a control. The results showed that rat BM-MSCs at passage 3 and 4 displayed only few phenotypical differences in the expression of surface antigens as detected by flow cytometry. When compared with the cells treated in normoxia, the proliferation of BM-MSCs in hypoxia was promoted, a greater number of cells expressed CD31 and a higher expression of vascular endothelial growth factor was observed after culture in hypoxic conditions. However, by inhibiting with LY294002, these changes induced by hypoxia were partly inhibited. In conclusion, the present study showed that the PI3K/AKT pathway served an important role in hypoxia-enhanced in vitro proliferation of BM-MSCs and their differentiation into endothelial cells and paracrine vascular endothelial growth factor.