Heme plays central roles in oxygen sensing and utilization in many living organisms. In yeast, heme mediates the effect of oxygen on the expression of many genes involved in using or detoxifying oxygen. However, a direct link between intracellular heme level and oxygen concentration has not been vigorously established. In this report, we have examined the relationships among oxygen levels, heme levels, Hap1 activity, and HAP1 expression. We found that Hap1 activity is controlled in vivo by heme and not by its precursors and that heme activates Hap1 even in anoxic cells. We also found that Hap1 activity exhibits the same oxygen dose-response curves as Hap1-dependent aerobic genes and that these dose-response curves have a sharp break at approximately 1 microM O2. The results show that the intracellular signaling heme level, reflected as Hap1 activity, is closely correlated with oxygen concentration. Furthermore, we found that bypass of all heme synthetic steps but ferrochelatase by deuteroporphyrin IX does not circumvent the need for oxygen in Hap1 full activation by heme, suggesting that the last step of heme synthesis, catalyzed by ferrochelatase, is also subjected to oxygen control. Our results show that multiple heme synthetic steps can sense oxygen concentration and provide significant insights into the mechanism of oxygen sensing in yeast.