Cellular differentiation involves transcriptional responses to environmental stimuli. Adipocyte differentiation is inhibited under hypoxic conditions, indicating that oxygen (O2) is an important physiological regulator of adipogenesis. Hypoxia inhibits PPARγ2 nuclear hormone receptor transcription, and overexpression of PPARγ2 or C/EBPβ stimulates adipogenesis under hypoxia. Mouse embryonic fibroblasts deficient in hypoxia-inducible transcription factor 1α (HIF-1α) are refractory to hypoxia-mediated inhibition of adipogenesis. The HIF-1-regulated gene DEC1/Stra13, a member of the Drosophila hairy/Enhancer of split transcription repressor family, represses PPARγ2 promoter activation and functions as an effector of hypoxia-mediated inhibition of adipogenesis. These data indicate that an O2-sensitive signaling mechanism regulates adipogenesis. Thus, agents that regulate HIF-1 activity or O2 sensing may be used to inhibit adipogenesis and control obesity.