Sre1, the fission yeast sterol regulatory element binding protein, is an endoplasmic reticulum membrane-bound transcription factor that responds to changes in oxygen-dependent sterol synthesis as an indirect measure of oxygen availability. Under low oxygen, Sre1 is proteolytically cleaved and the released N-terminal transcription factor (Sre1N) activates gene expression essential for hypoxic growth. Here, we describe an oxygen-dependent mechanism for regulation of Sre1 that is independent of sterol-regulated proteolysis. Using yeast expressing only Sre1N, we show that Sre1N turnover is regulated by oxygen. Ofd1, an uncharacterized prolyl 4-hydroxylase-like 2-oxoglutarate-Fe(II) dioxygenase, accelerates Sre1N degradation in the presence of oxygen. However, unlike the prolyl 4-hydroxylases that regulate mammalian hypoxia-inducible factor, Ofd1 uses multiple domains to regulate Sre1N degradation by oxygen; the Ofd1 N-terminal dioxygenase domain is required for oxygen sensing and the Ofd1 C-terminal domain accelerates Sre1N degradation. Our data support a model whereby the Ofd1 N-terminal dioxygenase domain is an oxygen sensor that regulates the activity of the C-terminal degradation domain.