N⁶-methyladenosine (m⁶A) modification of mRNA plays a role in regulating embryonic stem cell pluripotency. However, the physiological signals that determine the balance between methylation and demethylation have not been described, nor have studies addressed the role of m⁶A in cancer stem cells. We report that exposure of breast cancer cells to hypoxia stimulated hypoxia-inducible factor (HIF)-1α- and HIF-2α–dependent expression of AlkB homolog 5 (ALKBH5), an m⁶A demethylase, which demethylated NANOG mRNA, which encodes a pluripotency factor, at an m⁶A residue in the 3′-UTR. Increased NANOG mRNA and protein expression, and the breast cancer stem cell (BCSC) phenotype, were induced by hypoxia in an HIF- and ALKBH5-dependent manner. Insertion of the NANOG 3′-UTR into a luciferase reporter gene led to regulation of luciferase activity by O₂, HIFs, and ALKBH5, which was lost upon mutation of the methylated residue. ALKBH5 overexpression decreased NANOG mRNA methylation, increased NANOG levels, and increased the percentage of BCSCs, phenocopying the effect of hypoxia. Knockdown of ALKBH5 expression in MDA-MB-231 human breast cancer cells significantly reduced their capacity for tumor initiation as a result of reduced numbers of BCSCs. Thus, HIF-dependent ALKBH5 expression mediates enrichment of BCSCs in the hypoxic tumor microenvironment.