In response to decreased cellular oxygen concentrations the basic helix-loop-helix (bHLH)/PAS (Per, Arnt, Sim) hypoxia-inducible transcription factor, HIF-1alpha, mediates activation of networks of target genes involved in angiogenesis, erythropoiesis and glycolysis. Here we demonstrate that the mechanism of activation of HIF-1alpha is a multi-step process which includes hypoxia-dependent nuclear import and activation (derepression) of the transactivation domain, resulting in recruitment of the CREB-binding protein (CBP)/p300 coactivator. Inducible nuclear accumulation was shown to be dependent on a nuclear localization signal (NLS) within the C-terminal end of HIF-1alpha which also harbors the hypoxia-inducible transactivation domain. Nuclear import of HIF-1alpha was inhibited by either deletion or a single amino acid substitution within the NLS sequence motif and, within the context of the full-length protein, these mutations also resulted in inhibition of the transactivation activity of HIF-1alpha and recruitment of CBP. However, nuclear localization per se was not sufficient for transcriptional activation, since fusion of HIF-1alpha to the heterologous GAL4 DNA-binding domain generated a protein which showed constitutive nuclear localization but required hypoxic stimuli for function as a CBP-dependent transcription factor. Thus, hypoxia-inducible nuclear import and transactivation by recruitment of CBP can be functionally separated from one another and play critical roles in signal transduction by HIF-1alpha.