Kaposi's sarcoma-associated herpesvirus (KSHV) is the etiologic agent for Kaposi's sarcoma (KS) and primary effusion lymphoma (PEL). We previously reported that hypoxia activates KSHV lytic replication and that the promoter for open reading frame 34 (ORF34) contains a functional hypoxia-responsive element (HRE). ORF34 is part of a cluster of lytic genes (ORF34-37) that includes ORF36, a phosphotransferase, and ORF37, a shutoff exonuclease. Rapid amplification of cDNA ends analysis revealed that they share a common polyadenylation signal but have two start sites. Two transcripts were identified, one 3.4 kb encoding ORF35-37, and the other 4.2 kb encoding ORF34 and also having coding potential for ORF35-37. Exposure of PEL cell lines to hypoxia induced messages of lengths consistent with those of these transcripts. Reporter assays with Hep3B cells showed activation of both transcripts by hypoxia. The ORF34-37 promoter region has six consensus HREs. Sequential deletion, site-directed mutagenesis experiments, and Northern blot analysis of RNA produced by constructs indicated that the second HRE (HRE-2) plays a critical role in the hypoxic activation of both RNA transcripts. The ORF35-37 transcript was upregulated by cotransfected hypoxia-inducible factor (HIF). Electrophoretic mobility shift assays demonstrated that HRE-2 and ancillary sequences bind and compete for HIF with hypoxic Hep3B nuclear extract. The activation of this gene cluster by hypoxia may have implications for the pathogenesis of PEL and KS. Moreover, the activation of ORF36 by hypoxia might be exploited to develop targeted therapy for PEL, which arises in a hypoxic environment (pleural effusions).