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The in vitro oxygen microenvironment profoundly affects the capacity of cell cultures to model physiological and pathophysiological states. Cell culture is often considered to be hyperoxic, but pericellular oxygen levels, which are affected by oxygen diffusivity and consumption, are rarely reported. Here, we provide evidence that several cell types in culture actually experience local hypoxia, with important implications for cell metabolism and function. We focused initially on adipocytes, as adipose tissue hypoxia is frequently observed in obesity and precedes diminished adipocyte function. Under standard conditions, cultured adipocytes are highly glycolytic and exhibit a transcriptional profile indicative of physiological hypoxia. Increasing pericellular oxygen diverted glucose flux toward mitochondria, lowered HIF1α activity, and resulted in widespread transcriptional rewiring. Functionally, adipocytes increased adipokine secretion and sensitivity to insulin and lipolytic stimuli, recapitulating a healthier adipocyte model. The functional benefits of increasing pericellular oxygen were also observed in macrophages, hPSC-derived hepatocytes and cardiac organoids. Our findings demonstrate that oxygen is limiting in many terminally-differentiated cell types, and that considering pericellular oxygen improves the quality, reproducibility and translatability of culture models., (© 2024. The Author(s).)