VEGF is produced by osteoblasts and has been postulated to function as an angiogenic stimulus during normal skeletal development and in fracture repair. In this study, we characterized the molecular mechanisms by which experimental hypoxia increases VEGF mRNA in human MG63 osteoblast-like cells. Exposure of MG63 cells to 1% O₂ for 24 h resulted in a four-fold increase in VEGF mRNA. Immunoblotting of nuclear extracts demonstrated a time-dependent increase in the level of the Hif-2α protein, which preceded the rise in VEGF mRNA. To determine the effect of hypoxia on VEGF gene transcription, MG63 cells were transiently transfected with a segment of the VEGF promoter construct fused to luciferase and then exposed to 1% O₂. Hypoxia induced VEGF promoter activity five-fold by 24 h. Forced expression of Hif-2α, but not Hif-1α, increased both basal and hypoxia induced VEGF promoter activity. By contrast, the ability of the VEGF reporter to respond to hypoxia or recombinant Hif-2α was abolished in cells transfected with a VEGF promoter construct containing a mutation in the hypoxia response element. In summary, exposure of osteoblast-like cells to hypoxia induces VEGF expression via induction of Hif-2α and transcriptional activation of the VEGF promoter.