Complex multicellular organisms evolved on Earth in an oxygen-rich atmosphere1; their tissues, including stem-cell niches, require continuous oxygen provision for efficient energy metabolism2. Notably, the maintenance of the pluripotent state of animal stem cells requires hypoxic conditions, whereas higher oxygen tension promotes cell differentiation3. Here we demonstrate, using a combination of genetic reporters and in vivo oxygen measurements, that plant shoot meristems develop embedded in a low-oxygen niche, and that hypoxic conditions are required to regulate the production of new leaves. We show that hypoxia localized to the shoot meristem inhibits the proteolysis of an N-degron-pathway4,5 substrate known as LITTLE ZIPPER 2 (ZPR2)—which evolved to control the activity of the class-III homeodomain-leucine zipper transcription factors6–8—and thereby regulates the activity of shoot meristems. Our results reveal oxygen as a diffusible signal that is involved in the control of stem-cell activity in plants grown under aerobic conditions, which suggests that the spatially distinct distribution of oxygen affects plant development. In molecular terms, this signal is translated into transcriptional regulation by the N-degron pathway, thereby linking the control of metabolic activity to the regulation of development in plants.