The hypoxia-inducible transcription factor-1 (HIF-1) is central to a number of pathological processes through the induction of specific genes such as vascular endothelial growth factor (VEGF). Even though HIF-1 is highly regulated by cellular oxygen levels, other elements of the inflammatory and tumor microenvironment were shown to influence its activity under normal oxygen concentration. Among others, recent studies indicated that transforming growth factor (TGF) beta increases the expression of the regulatory HIF-1alpha subunit, and induces HIF-1 DNA binding activity. Here, we demonstrate that TGFbeta acts on HIF-1alpha accumulation and activity by increasing HIF-1alpha protein stability. In particular, we demonstrate that TGFbeta markedly and specifically decreases both mRNA and protein levels of a HIF-1alpha-associated prolyl hydroxylase (PHD), PHD2, through the Smad signaling pathway. As a consequence, the degradation of HIF-1alpha was inhibited as determined by impaired degradation of a reporter protein containing the HIF-1alpha oxygen-dependent degradation domain encompassing the PHD-targeted prolines. Moreover, inhibition of the TGFbeta1 converting enzyme, furin, resulted in increased PHD2 expression, and decreased basal HIF-1alpha and VEGF levels, suggesting that endogenous production of bioactive TGFbeta1 efficiently regulates HIF-1-targeted genes. This was reinforced by results from HIF-1alpha knock-out or HIF-1alpha-inhibited cells that show impairment in VEGF production in response to TGFbeta. This study reveals a novel mechanism by which a growth factor controls HIF-1 stability, and thereby drives the expression of specific genes, through the regulation of PHD2 levels.