Hypoxia-inducible factor 1 (HIF-1) is a master regulator of oxygen homeostasis that controls angiogenesis, erythropoiesis, and glycolysis via transcriptional activation of target genes under hypoxic conditions. O₂-dependent binding of the von Hippel-Lindau (VHL) tumor suppressor protein targets the HIF-1α subunit for ubiquitination and proteasomal degradation. The activity of the HIF-1α transactivation domains is also O₂ regulated by a previously undefined mechanism. Here, we report the identification of factor inhibiting HIF-1 (FIH-1), a protein that binds to HIF-1α and inhibits its transactivation function. In addition, we demonstrate that FIH-1 binds to VHL and that VHL also functions as a transcriptional corepressor that inhibits HIF-1α transactivation function by recruiting histone deacetylases. Involvement of VHL in association with FIH-1 provides a unifying mechanism for the modulation of HIF-1α protein stabilization and transcriptional activation in response to changes in cellular O₂ concentration.