Endoplasmic reticulum-associated degradation of the enzyme 3-hydroxy-3-methylglutaryl-CoA reductase represents one mechanism by which cholesterol synthesis is controlled in mammalian cells. The key reaction in this degradation is binding of reductase to Insig proteins in the endoplasmic reticulum, which is stimulated by the cholesterol precursor lanosterol. Conversion of lanosterol to cholesterol requires removal of three methyl groups, which consumes nine molecules of dioxygen. Here, we report that oxygen deprivation (hypoxia) slows demethylation of lanosterol and its metabolite 24,25-dihydrolanosterol, causing both sterols to accumulate in cells. In addition, hypoxia increases the amount of Insig-1 and Insig-2 in a response mediated by hypoxia-inducible factor (HIF)-1alpha. Accumulation of lanosterol together with increased Insigs accelerates degradation of reductase, which ultimately slows a rate-determining step in cholesterol synthesis. These results define a novel oxygen-sensing mechanism mediated by the combined actions of methylated intermediates in cholesterol synthesis and the hypoxia-activated transcription factor HIF-1alpha.