Numerous studies have demonstrated the critical role of angiogenesis for successful osteogenesis during endochondral ossification and fracture repair. Vascular endothelial growth factor (VEGF), a potent endothelial cell-specific cytokine, has been shown to be mitogenic and chemotactic for endothelial cells in vitro and angiogenic in many in vivo models. Based on previous work that (1) VEGF is up-regulated during membranous fracture healing, (2) the fracture site contains a hypoxic gradient, (3) VEGF is up-regulated in a variety of cells in response to hypoxia, and (4) VEGF is expressed by isolated osteoblasts in vitro stimulated by other fracture cytokines, the hypothesis that hypoxia may regulate the expression of VEGF by osteoblasts was formulated. This hypothesis was tested in a series of in vitro studies in which VEGF mRNA and protein expression was assessed after exposure of osteoblast-like cells to hypoxic stimuli. In addition, the effects of a hypoxic microenvironment on osteoblast proliferation and differentiation in vitro was analyzed. These results demonstrate that hypoxia does, indeed, regulate expression of VEGF in osteoblast-like cells in a dose-dependent fashion. In addition, it is demonstrated that hypoxia results in decreased cellular proliferation, decreased expression of proliferating cell nuclear antigen, and increased alkaline phosphatase (a marker of osteoblast differentiation). Taken together, these data suggest that osteoblasts, through the expression of VEGF, may be in part responsible for angiogenesis and the resultant increased blood flow to fractured bone segments. In addition, these data provide evidence that osteoblasts have oxygen-sensing mechanisms and that decreased oxygen tension can regulate gene expression, cellular proliferation, and cellular differentiation.