Most humans carry a mixed population of mitochondrial DNA (mtDNA heteroplasmy) affecting ~1-2% of molecules, but rapid percentage shifts occur over one generation leading to severe mitochondrial diseases. A decrease in the amount of mtDNA within the developing female germ line appears to play a role, but other sub-cellular mechanisms have been implicated. Establishing an in vitro model of early mammalian germ cell development from embryonic stem cells, here we show that the reduction of mtDNA content is modulated by oxygen and reaches a nadir immediately before germ cell specification. The observed genetic bottleneck was accompanied by a decrease in mtDNA replicating foci and the segregation of heteroplasmy, which were both abolished at higher oxygen levels. Thus, differences in oxygen tension occurring during early development likely modulate the amount of mtDNA, facilitating mtDNA segregation and contributing to tissue-specific mutation loads.