Cellular differentiation involves transcriptional responses to environmental stimuli. Adipocyte differentiation is inhibited under hypoxic conditions, indicating that oxygen (O(2)) is an important physiological regulator of adipogenesis. Hypoxia inhibits PPAR gamma 2 nuclear hormone receptor transcription, and overexpression of PPAR gamma 2 or C/EBP beta stimulates adipogenesis under hypoxia. Mouse embryonic fibroblasts deficient in hypoxia-inducible transcription factor 1 alpha (HIF-1 alpha) 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 PPAR gamma 2 promoter activation and functions as an effector of hypoxia-mediated inhibition of adipogenesis. These data indicate that an O(2)-sensitive signaling mechanism regulates adipogenesis. Thus, agents that regulate HIF-1 activity or O(2) sensing may be used to inhibit adipogenesis and control obesity.