HIF-1alpha (hypoxia-inducible factor 1alpha) is a basic-helix-loop-helix PAS (Per/Arnt/Sim) transcription factor that, under hypoxic conditions, dimerizes with a partner factor, the basic-helix-loop-helix/PAS protein Arnt, to recognize hypoxia-responsive elements of target genes. It has recently been demonstrated that HIF-1alpha protein but not mRNA levels are dramatically up-regulated in response to hypoxia. Here we show that inhibitors of 26 S proteasome activity produced a dramatic accumulation of endogenous as well as transfected HIF-1alpha protein under normoxic conditions, whereas the levels of Arnt protein were not affected. HIF-1alpha was polyubiquitinated in vivo under normoxic conditions, indicating rapid degradation via the ubiquitin-proteasome pathway. This degradation process appeared to target a region within the C terminus of HIF-1alpha. Importantly, HIF-1alpha ubiquitination was drastically decreased under hypoxic conditions. Up-regulation of HIF-1alpha protein by proteasome inhibitors did not result in transcriptional activation of reporter genes, indicating either the requirement of additional regulatory steps to induce functional activity of HIF-1alpha or the inability of polyubiquitinated forms of HIF-1alpha to mediate hypoxic signal transduction. In support of both these notions, we demonstrate that HIF-1alpha showed hypoxia-dependent translocation from the cytoplasm to the nucleus and that this regulatory mechanism was severely impaired in the presence of proteasome inhibitors. Taken together, these data demonstrate that the mechanism of hypoxia-dependent activation of HIF-1alpha is a complex multistep process and that stabilization of HIF-1alpha protein levels is not sufficient to generate a functional form.