Osteogenesis of mesenchymal stem cells (MSCs) is highly dependent on oxygen supply. We have shown that perfluorotributylamine (PFTBA), a synthetic oxygen carrier, enhances MSC-based bone formation in vivo. Exploring this phenomenon's mechanism, we hypothesize that a transient increase in oxygen levels using PFTBA will affect MSC survival, proliferation, and differentiation, thus increasing bone formation. To test this hypothesis, MSCs overexpressing bone morphogenetic protein 2 were encapsulated in alginate beads that had been supplemented with an emulsion of PFTBA or phosphate-buffered saline. Oxygen measurements showed that supplementation of PFTBA significantly increased the available oxygen level during a 96-h period. PFTBA-containing beads displayed an elevation in cell viability, which was preserved throughout 2 weeks, and a significantly lower ratio of dead cells throughout the experiment. Furthermore, the cells from the control group expressed significantly more hypoxia-related genes such as VEGF, DDIT3, and PKG1. Additionally, PFTBA supplementation led to an increase in the osteogenic differentiation and to a decrease in chondrogenic differentiation of MSCs. In conclusion, PFTBA increases the oxygen availability in the vicinity of the MSCs, which suffer oxygen exhaustion shortly after encapsulation in alginate beads. Consequently, cell survival is increased, and hypoxia-related genes are downregulated. In addition, PFTBA promotes osteogenic differentiation over chondrogeneic differentiation, and thereby can accelerate MSC-based bone regeneration.