The molecular mechanism regulating embryo development under reduced oxygen tension remains elusive. This study aimed to identify the molecular mechanism impacting embryo development under low oxygen conditions. Buffalo embryos were cultured under 5% or 20% oxygen and were evaluated according to their morphological parameters related to embryo development. The protein profiles of these embryos were compared using iTRAQ-based quantitative proteomics. Physiological O₂ (5%) significantly promoted blastocyst yield, hatching rate, embryo quality and cell count as compared to atmospheric O₂ (20%). The embryos in the 5% O₂ group had an improved hatching rate of cryopreserved blastocysts post-warming (p < 0.05). Comparative proteome profiles of hatched blastocysts cultured under 5% vs. 20% O₂ levels identified 43 differentially expressed proteins (DEPs). Functional analysis indicated that DEPs were mainly associated with glycolysis, fatty acid degradation, inositol phosphate metabolism and terpenoid backbone synthesis. Our results suggest that embryos under physiological oxygen had greater developmental potential due to the pronounced Warburg Effect (aerobic glycolysis). Moreover, our proteomic data suggested that higher lipid degradation, an elevated cholesterol level and a higher unsaturated to saturated fatty acid ratio might be involved in the better cryo-survival ability reported in embryos cultured under low oxygen. These data provide new information on the early embryo protein repertoire and general molecular mechanisms of embryo development under varying oxygen levels.