In response to decreased cellular oxygen concentrations the basic helix‐loop‐helix (bHLH)/PAS (P er, A rnt, S im) hypoxia‐inducible transcription factor, HIF‐1α, mediates activation of networks of target genes involved in angiogenesis, erythropoiesis and glycolysis. Here we demonstrate that the mechanism of activation ofHIF‐1α 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‐1α which also harbors the hypoxia‐inducible transactivation domain. Nuclear import of HIF‐1α 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‐1α and recruitment of CBP. However, nuclear localization per se was not sufficient for transcriptional activation, since fusion of HIF‐1α 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‐1α.