HSC fate decisions are regulated by cell-intrinsic and cell-extrinsic cues. The latter cues are derived from the BM niche. Membrane-type 1 matrix metalloproteinase (MT1-MMP), which is best known for its proteolytic role in pericellular matrix remodeling, is highly expressed in HSCs and stromal/niche cells. We found that, in MT1-MMP^−/− mice, in addition to a stem cell defect, the transcription and release of kit ligand (KitL), stromal cell–derived factor-1 (SDF-1/CXCL12), erythropoietin (Epo), and IL-7 was impaired, resulting in a trilineage hematopoietic differentiation block, while addition of exogenous KitL and SDF-1 restored hematopoiesis. Further mechanistic studies revealed that MT1-MMP activates the hypoxia-inducible factor-1 (HIF-1) pathway via factor inhibiting HIF-1 (FIH-1) within niche cells, thereby inducing the transcription of HIF-responsive genes, which induce terminal hematopoietic differentiation. Thus, MT1-MMP in niche cells regulates postnatal hematopoiesis, by modulating hematopoietic HIF-dependent niche factors that are critical for terminal differentiation and migration.